National debt €12bn higher as tax take sinks by 19%

THE PUBLIC finances deteriorated sharply last year, with Ireland’s exchequer balance worsening by almost €12 billion, new figures from the Department of Finance show.

An unprecedented €7.7 billion decline in tax revenue – down 19 per cent on the year before – and a €4 billion payment to Anglo Irish Bank were the main reasons for the €11.9 billion year-on-year deterioration in the exchequer balance.

However, the Government collected more tax in the final month of 2009 than it had expected. In a statement, Minister for Finance Brian Lenihan said the better-than-expected performance in tax in December was “welcome news” and that the figures showed the Government had “maintained a tight control over public spending”, which he said would continue in 2010.

The exchequer deficit stood at €24.6 billion at the end of 2009, compared with a deficit of €12.7 billion at the end of the previous year.

Despite pressures on the budget of the Department of Social and Family Affairs due to swelling numbers on the Live Register, the Government cut net expenditure by almost €2.2 billion last year, according to the end-of-year exchequer returns data issued yesterday.

However, this was more than cancelled out by the tax declines, the Anglo payment, a €1 billion increase in the interest payments on the national debt and a €1.3 billion rise in the payment to the National Pensions Reserve Fund compared to 2008.

Mr Lenihan said the €1 billion rise in debt servicing costs was “clear evidence of the need to take action to achieve long-term sustainability of the public finances”.

About one in every €12 collected in tax went to service the national debt in 2009. By the end of 2014, the Department of Finance estimates, more than €1 in every €5 collected in tax will be required to pay the interest on Ireland’s debt.

Tax revenues reached €33 billion in 2009, which took the annual tax haul back to 2003 levels. The tax receipts for the year were down from €40.7 billion in 2008 and also fell short of the €34.4 billion target set at the supplementary budget last April.

Better than expected capital gains tax payments in December as well as higher returns from corporation tax and excise duties over the year meant that tax revenues in 2009 came in €473 million higher than was forecast in Budget 2010.

However, the two largest categories of tax – income tax and VAT – remained weak.

Fine Gael deputy leader and finance spokesman Richard Bruton said the public finances had “not improved in any meaningful way” and that it would be “foolish to assume that these figures represent a turning point”.

Labour Party deputy leader and finance spokeswoman Joan Burton said there was “little solace” to be drawn from the end-of-year figures and that the poor returns once again highlighted the absence of a coherent jobs strategy.

Department of Finance official Michael McGrath said it would not be changing its Budget day tax forecasts, despite the “slight improvement” in revenues in December. The Government said last month it expected to receive €31.9 billion in tax receipts during 2010. “We don’t anticipate that there’s any reason to change our view on tax revenues for 2010,” Mr McGrath said.

Alan McQuaid, economist at stockbrokers Bloxham, said the Government had “every reason to be optimistic about its chances of stabilising the public finances over the next few years”.

Only two Government departments spent more money in 2009 than 2008: the Department of Enterprise, Trade and Employment, where spending rose 1 per cent, and the Department of Social and Family Affairs, where surging unemployment led to a 12 per cent increase.

However, social welfare spending was lower than had been planned for in April, because the average number of unemployment claimants turned out to be lower than expected.