Poor income tax returns spark new concern over state coffers
POOR returns from income tax last month awakened fresh worries about the government finances this year -- even though the Exchequer returns for February were broadly on target.
Analysts expressed hope that temporary lay-offs due to bad weather may have contributed to the income tax shortfall.
One warned, however, that some further cutbacks may be needed in next year's Budget to keep government plans on track.
Adding to the gloomy economic mood, consumer confidence dropped last month as Christmas bills came in and the winter sales ended.
February's Exchequer returns showed a better-than-expected revenue from VAT -- meaning that the overall public finances were broadly on target last month, with total revenues of more than €4.7bn for the first two months of the year.
VAT receipts were €78m more than expected. However, February is not a VAT collection month, with only €240m expected, so it does not provide much evidence on the trend.
The worry was over a €115m shortfall in income tax relative to forecasts. Income tax is even more difficult to predict than usual, with no one sure how much wages are falling. There were also signs of heavy job losses so far this year.
Excise duties, which come mainly from cars, drink and tobacco, also disappointed and stamp duty receipts on property and shares were even less than the tiny €120m the Department of Finance had expected.
There was a surprise €40m extra from capital gains tax, which kept the overall shortfall to an insignificant €44m out of total tax revenues of €4.7bn.
The Exchequer is showing an overall budget deficit of €2.4bn in the first two months of 2010. Day-to-day government spending was 8pc below the first two months of 2009. The Government plans to hold spending at 2009 levels this year and should be helped by fewer-than-expected numbers signing on the Live Register.
"The figures should provide some measure of reassurance to international markets that tough medicine is working in Ireland but the gap between spending and taxes suggests there will be further significant adjustments," said Austin Hughes at KBC Bank.
"The actual tax take for last year came in higher than anticipated, which in theory suggests that 2010 should be better than forecast, but that doesn't appear to be the case," said Alan McQuaid, chief economist at Bloxham Strockbrokers.
"The poor weather may have been a contributory factor. We remain optimistic that tax revenues will gradually improve in the coming months," he said.
Fine Gael finance spokesman Richard Bruton said there was a danger the economy could be hit by a vicious circle.
"The February tax returns have confirmed that January's disappointing figures are part of an ongoing trend," he said.
"In both months tax revenue came in 18pc below the same month last year. Hopes that the bad figures of January were due to the bad weather have not been borne out."
Mr Bruton said if the patterns continued throughout the year, revenue would be €800m behind forecast.