Tax revenue slump leaves €750m hole in finances
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A €750m hole opened up in the public finances last month, as tax revenues dropped by almost 20pc, new figures showed yesterday.
The Exchequer returns for January show that tax revenue for the first month of the year was €875m lower than for the same time last year.
However, Taoiseach Brian Cowen insisted the Exchequer returns were in line with expectations, even though the Department of Finance has yet to publish its monthly predictions for income and expenditure.
"I understand from the Department of Finance that this profile of expenditure was what was expected for January 2009," Mr Cowen said.
Bloxham economist Alan McQuaid said it was hard to judge if the tax revenue figures are running below target, but "running below target they are likely to be".
He said that as prices and sales are generally falling across the economy, the take from spending taxes such as VAT and vehicle registration tax (VRT) is bound to be hit.
Exchequer
"The public finances were already in a pretty bad position heading into 2009, and the Exchequer figures for January will do little to lift the spirits of the Government," Mr McQuaid added.
The deepening recession is reflected in the figures which show a decline in all of the major tax headings compared with the same month a year ago.
The €747m deficit for the opening month compares with a surplus of €630m in January 2008, and economists said last night the picture would have been even worse but for containment in the level of spending.
The returns show tax revenue in January came in at just €3.73bn, or 19pc below the €4.6bn recorded for January 2008.
All of the major headings were down, with falling prices in the economy reflected in a huge drop in VAT, one of the most important tax headings during the Celtic Tiger era. In January, VAT revenues fell by 15.6pc to €1.96bn from €2.33bn last year.
The impact of declining property values was reflected in two key headings, with big falls in capital gains tax and stamp duty. Capital gains tax virtually collapsed as it dropped by 72.1pc from €129m to €35m and there was a similar collapse in stamp duties which were down 72.6pc from €180m to just €50m.
Excise duty was 34pc below the level a year ago, thanks in the main to the collapse in car sales which were down by 67pc compared with January 2008.
Income tax was down 3.6pc as it went from €1.21bn to €1.16bn and corporation tax fell a massive 38.5pc from €196m to €121m. Voted expenditure was up 12pc from €4.2bn to €4.7bn.
Outlook
The Department of Finance has recently admitted that the poor tax revenue performance, combined with the worsening economic outlook, means that the fiscal outlook for 2009 and subsequent years has weakened considerably.
Mr McQuaid said that, on the basis of existing policy, which assumes payment of the latest public sector pay under 'Towards 2016' and no other policy measures beyond those already announced in Budget 2009, a general government deficit in the range of 11pc to 12pc of GDP is in prospect for each of the years to 2013.
"It was, therefore, essential that the Government took the necessary steps to cut €2bn off the day-to-day spending bill even without the full agreement of the social partners," Mr McQuaid said.
The Government has decided to introduce a new pension levy for public servants which is projected to yield €1.4bn, while it has also, in effect, implemented a pay freeze for 2009 and 2010.
Other cuts for 2009 include a €300m reduction in capital spending as well as reductions in Ireland's overseas development aid and childcare allowances.
Davy economist Rossa White said that the savings announced yesterday may not be enough. "It is a welcome first step, but tax revenue is likely to undershoot the Government's early January forecast by at least €3.5bn in 2009," he said.
Mr White suggested the €2bn savings announced must be followed by job cuts and further pay cuts, as well as efficiency savings from 'An Bord Snip'.
- Pat Boyle
