Tax take €2bn below target

The Government will have to borrow €2 billion more than it expected to finance the running of the State, after continued weakness in the economy led to lower than anticipated tax revenues in the first nine months of the year.

The latest Exchequer returns published by the Department of Finance this afternoon show a large shortfall in the amount of VAT and income tax collected by the Government compared to the sums they had forecast in April.

The figures, described by one economist as "fairly bleak", point to further cuts in Government spending in the next Budget as it seeks to stabilise the public finances.

Tax receipts took a turn for the worse in September, which is an important month for the collection of VAT, and are now 16.8 per cent or €4.8 billion down on the first nine months of last year.

At €23.7 billion, the amount of tax collected is already €965 million behind the Department's projections. Minister for Finance Brian Lenihan said the likely tax shortfall for the year as a whole was likely to be double that, in the region of €2 billion.

This means that instead of collecting an anticipated €34.4 billion in tax receipts in 2009, the Department's new target is in the region of €32.4 billion.

"The weakness in taxation receipts reinforces the need for expenditure reductions to stabilise the position in the public finances," the Minister said. "We must reduce public spending to restore sustainability over the medium term and return to the path of economic growth."

The Exchequer deficit stood at €20.1 billion at the end of September and is down €10.8 billion on the same point in 2008.

The year-on-year deterioration comprises the €4.8 billion decline in tax receipts, a €4 billion payment to Anglo Irish Bank and €1.7 billion in respect of a pre-funding of the annual contribution to the National Pensions Reserve Fund (NPRF).

The Department of Finance has also revised down its target for the General Government Deficit, which it now expects to be -12 per cent of GDP, rather than the -10.75 per cent it forecast in the supplementary Budget.

The Government said in April measures introduced in the supplementary Budget would reduce the deficit for the year from a forecast of -12.75 per cent to -10.75 per cent.

However, since then the pattern of tax receipts has been significantly weaker than expected, with VAT receipts accounting for €653 million of the shortfall and income tax slipping €479 million behind projections.

The Department of Finance now expects the November VAT receipts, the last big month for VAT collection in the year, will continue the weak trend, while it is forecasting that income tax collected from self-assessed taxpayers in November will mirror subdued trends in PAYE receipts.

However, the Government expects to make some savings from the Live Register of unemployment benefit claimants as the number of claimants is now expected to be lower than the 440,000 a month average it had projected.

The unemployment rate held steady at 12.6 per cent in September and is now expected to peak next year at a lower rate than had been feared.

"It is evident now that what was factored in for the Live Register in the Budget was too high and there will be savings," said Michael McGrath, assistant secretary in the Department of Finance.

The monthly average of claimants this year is now expected to be in the "low 400,000s", he added. The Department estimates that every 1,000 people on the Live Register costs the Exchequer €13 million.

On the expenditure side, current (or day-to-day) spending by the Government has been lower than its projections, while capital spending (or spending on long-term infrastructure) has been 8.5 per cent lower than projected. However, the lower than expected capital spending is a "timing issue", the Department said.

Alan McQuaid, economist at stockbrokers Bloxham, said the pressure on Mr Lenihan to deliver a "very tough" Budget in December had now "increased dramatically".