Half of all income tax now going on loan interest payments
Published 03/06/2011 | 05:00
HALF of all income tax is now used to meet the interest payments on the country's ever-increasing mountain of debt.
The latest exchequer returns from the Department of Finance show the State paid out €2.6bn in interest in the first five months of the year while collecting €5.1bn in income tax.
Last night's figures show the exchequer returns are marginally below target as struggling companies pay less tax than last year.
The exchequer returns, which measure how much tax has been raised and how much has been spent so far this year, show the Government is 0.5pc below target as higher income tax payments fail to make up for a collapse in taxes paid by companies. Economists said yesterday the new figures show that the Government remains on track to meet targets imposed by the International Monetary Fund and the European Union which are a condition of fresh loans.
"The public finances are performing in line with expectations," Ulster Bank economist Simon Barry said.
Conall Mac Coille, an economist at Davy Stockbrokers, added the figures provide "more support for the view that tax revenues will meet the targets set out in the budget".
The Government has collected €5.1bn in income tax so far this year compared to just €4.2bn in the same period last year, despite rising unemployment and lower salaries.
Almost every other tax category from stamp duty to VAT and excise duty fell or remained flat. Corporation tax was the one big disappointment -- coming in 10.4pc below target and almost 20pc below last year's figure.
The Department of Finance suggested some companies may still pay the tax later in the year but a slew of figures from other sources suggest companies are struggling more than expected as consumers keep their wallets in their pockets and a slowdown in the world economy hits demand overseas.
The 2pc shortfall in predicted VAT receipts is another sign of consumer's reluctance, or inability, to spend.
Tax revenues in the first five months amounted to €12.8bn, which was 5.6pc higher than the same period in 2010.
While that sounds reassuring, some economists warned that underlying situation deteriorated last month, noting that the tax take was 6.7pc above the previous year's level in the four months to April.
Alan McQuaid, an economist at Bloxham Stockbrokers, said Government forecasts for a 9.9pc increase in the tax take over 2011 looks "overly optimistic".
He described the latest figures as "disappointing but by no means a disaster".
The latest figures highlight once again that we are living well beyond our means, with the gap between Government borrowing and spending widening to €10.2bn compared with €7.9bn in the same period last year.
The main reason for the increased deficit this year was the €3bn payment in promissory notes to Anglo Irish Bank and Irish Nationwide Building Society in March. Excluding these payments there was an improvement in the deficit of just under €700m. The €3bn is the first part of a much bigger bill.