Income tax rises 30pc as growth target cut
WORKERS paid almost 30pc more in income tax last month compared with the previous January as the full impact of the Universal Social Charge (USC) showed up in Government revenues.
But the coalition's prospects of being on target with its economic figures hit a setback when the Central Bank slashed growth forecasts for 2012.
The bank warned workers that they face another two years of wage freezes and high unemployment.
The swingeing downgrades to the Central Bank's growth forecasts left it significantly less optimistic than the Government.
The bank now sees gross domestic product expanding 0.5pc this year, or almost a third of Finance Minister Michael Noonan's forecasts.
The bank blames the downgrade on problems in Europe but adds "domestic components of expenditure have also been revised down somewhat".
The Central Bank's quarterly report said it is slashing growth forecasts as exports, consumer spending and investment post smaller improvements than expected back when the last report was published in October.
Three months ago, the bank was predicting GDP growth of 1.8pc. Exports, the main driver of growth, are now expected to rise just 3.1pc this year, down from a prediction of 5.2pc in October.
"By any stretch of the imagination, that is a significant downgrade," said director of economic policy Maurice McGuire. "This represents a significant downward revision and reflects in the main the weaker outlook for external demand."
Taoiseach Enda Kenny backed his Finance Minister's forecasts against the bank's predictions.
"We're prepared to stand by those. Growth figures as you know depend on a whole variety of conditions, many of which are difficult to determine in the time ahead," he added.
On the plus side for the Government, Exchequer returns for the first month of the year are broadly on target, the Department of Finance said, but the figures contain significant swings from this time last year.
While total tax revenues in January were 17pc higher than last year, day-to-day government spending fell by less than 3pc over 2011, the figures show.
Budget targets for current spending for 2012 are to fall by 2pc over last year, with tax revenues to rise 4.5pc. The €270m increase in income taxes is mainly due to increases in Budget 2011, including the USC.
Budget measures tend not to show up in January, with most of the income tax due to payments made in December. Last December's Budget 2012 made no changes to income tax, compared with the €1bn raised during 2011.
The main source of revenue for this year is the 2pc rise in the rate of VAT. The returns show VAT revenues in the month up 3pc to more than €1.7bn.
This is in line with the Government target for the whole year, but many economists think weak consumer spending may cause an eventual shortfall in the targeted €600m increase.