Spending cuts alert as €2bn more lost in taxes
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Wednesday December 03 2008
TAOISEACH Brian Cowen paved the way for more cuts in public spending last night after his Government lost a further €2bn in taxes in just two months.
But economists warned against savage cutbacks or tax rises, saying these would do further damage to the economy.
The cutbacks loom as tax revenue collapsed further in November -- normally the most lucrative month of the year for the Exchequer -- throwing out figures for next year's Budget.
And the shortfall in the tax-take for the year rose further last night after the tax returns for November fell way short of even the most pessimistic expectations. The gap in the amount of taxes the Government expected to collect is now close to €7.5bn after the first 11 months of the year.
The normally bumper month of November delivered around €3.5bn less tax than expected, meaning the Government will now have to borrow about €13.5bn this year to make ends meet.
The rapid deterioration in the public finances is worse than the picture set out by Finance Minister Brian Lenihan in his Budget six weeks ago.
The options open to the Government look bleak:
l Borrow even more on top of the €12bn already envisaged.
l Introduce a mini-budget in the spring to revise tax and spend plans.
l Raise income taxes to bridge the shortfall.
l Cut several billion from spending.
Mr Lenihan's forecasts looked like complete guesswork as VAT, Corporation Tax, Capital Gains Tax and Stamp Duty all fell way below target.
The Government can now expect a final shortfall in its tax predictions of at least €8bn for the year as a whole come the end of December.
But the disappearance of an extra €2bn into the tax blackhole prompted Mr Cowen and Mr Lenihan to signal clearly that more cuts were on the way.
Mr Cowen accepted November was a "disappointing month" and December would follow the same pattern.
"That deterioration, if you like, has to be addressed in the context of the Government being prepared to look at further programmes to see what way we can ensure that, going into next year as challenging as it may be, to see in what way we can seek to help stabilise the finances further," he said.
Mr Lenihan said it was "essential further measures are identified to ensure the sustainability of the public finances".
Last night, a Government spokesman did not rule out further cuts being introduced before the end of the year.
The Government's economic woes will be further compounded today when new Live Register figures confirm a growth in unemployment.
Labour said the exchequer figures were "ruinous" and show the need to get the economy moving. Fine Gael leader Enda Kenny asked Mr Cowen what exactly was the Government's plan to bring confidence into the economy.
ESRI economist John Fitzgerald said the Government should be careful about drastic action to cut next year's deficit.
"I would prefer to wait until 2010, when there may be some recovery. There will have to be significant tax rises at some point, which could delay a return to full growth until 2014," he said.
Pat McArdle, chief economist at Ulster Bank, said much of the lost tax revenue would be recouped when the economy recovered. "It would, therefore, be wrong to say that we have to cut an extra €1.5bn from Government spending," he said.
Alan McQuaid, of Bloxham Stockbrokers, warned: "The danger now is that the Government may compound the difficulties by introducing a supplementary budget early next year, raising taxes further and putting another nail in the domestic demand coffin."
- Brendan Keenan and Fionnan Sheahan
