Job and pay cuts threat to plans for Budget
RISING unemployment and cuts to pay and working hours are threatening to derail the Government's budgetary plans.
Exchequer returns for the six months to June, published yesterday, revealed the Government's finances are largely on track at the half-way point in the year and forecasts for growth may yet be upgraded by the Government.
However, a worrying 6pc drop in income tax returns could, if it continues, send the national finances in the wrong direction in the second half of the year.
Monthly income tax receipts in June were the lowest since September 2009 -- more than €300m below the target for this year.
Government revenue from income tax is now down 8.6pc year-on-year as overtime is cut and employees work fewer hours per week.
Despite being usually upbeat about the budgetary position, Finance Minister Brian Lenihan expressed concern over the falling income tax figures.
"The weakness in income tax, which reflects the position in the labour market, is of concern," he said.
The State will have to raise €20bn in borrowings this year to plug the gap between income and expenditure.
The tax figures would be worse had it not been for a slight rise in VAT and corporation tax in June.
Excise duties took a slight hit from the so-called 'Newry effect' as shoppers bought cheap alcohol in Northern Ireland.
The total tax take for the year to the end of June was €227m behind forecast, with income tax is €304m behind target, highlighting the damage done by the record unemployment of 450,000 people.
Some of the key figures from the Exchequer six-month report are:
- Coffers are €8.9bn in the red,- compared to €14bn for the same period last year.
- VAT receipts are €50m ahead of target at €5.1bn, a sign of increasing consumer spending.
- Corporation tax from businesses is €34m ahead of predictions at €1.6bn.
- Government spending is down €1.4bn on last year at €21.5bn.
- Stamp duty is €44m behind target at €279m.
Despite the worse-than-expected income tax returns, Mr Lenihan said taxes broadly moved in the right direction over the past six months.
"The public finances are stabilising. Economic recovery will assist this process, though serious challenges remain," he said. "Our overall funding requirement of about €20bn for this year continues to be a valid target."
In the same period last year the State was €14bn in the red due to billions pumped into Anglo Irish Bank and the National Pensions Reserve Fund.
Taoiseach Brian Cowen claimed the Exchequer figures justified the Government's tough spending cuts.
He said returns for the first half of the year were a further sign the economy had moved out of recession and was returning to growth.
"This confirms that the Government took the right, although difficult, decisions in last year's Budget," the Taoiseach said.
Fine Gael finance spokesman Michael Noonan said the figures were further evidence the jobs crisis was deepening. "Cutting the public deficit and saving the banks alone will not solve the jobs crisis," he said.
"Indeed, if these data show anything, it is that we will never solve the fiscal crisis until we help people back to work."
Labour's finance spokeswoman Joan Bruton rejected the Taoiseach and Mr Lenihan's assessments that the economy had turned a corner.
"The half-year returns for 2010 offer little comfort to the Government and certainly do not offer any definitive evidence that the economy has turned the corner as promised by the minister in his Budget speech last December," she said.
brendan keenan: analYsIs, page 24