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| The Tαnaiste and Minister for Finance, Brian Cowen T.D. |
Exchequer figures for the first nine months of the year show that overall tax receipts are running 490m behind the target set in the 2007 Budget last December and the shortfall means that the Government will have to borrow more to close the gap.
The figures from the Department of Finance published this evening show that there was an Exchequer deficit of 3.1 billion in the first nine months of this year, with a shortfall in property related taxes and excise duties.
Spending was 274m ahead of target and overspending on the Capital side was running 260m above forecast.
Corporation tax and income tax were slightly ahead of target, and the shortfalls in capital gains tax, stamp duties, VAT and excise duty, reflected the slowing economy.
Reflecting the impact of the property slowdown, stamp duties were 13.8% below target - 401m lower, while the figure for capital gains taxes was 101m below forecasts.
Excise duties were 225m lower than expected (4.9% below target), VAT was 132m lower than expected (1.1% below target) and excise duties were 225m under target (4.9% behind).
Income tax was more than 56m ahead (0.6% ahead), while Corporation Tax was 296m better than targeted, which was 14.6% ahead of target.
The Department of Transport payment of 130m for buying out the West Link Toll bridge off National Toll Roads impacted the spending side but the delay in payment of 174m in nursing home refunds, made the total better than it would otherwise have been.
Robbie Kelleher of Davy said that the shortfall likely to be well in excess of 1 billion for the year:
For the year as a whole the Minister has conceded that there will be some slippage on target. He now expects the Exchequer deficit to come in at 1 billion but that is less than 500 worse than the Budget target of 546 million.
That seems very optimistic although he did hint that there would be some unspecified savings elsewhere in the accounts.
We expect the shortfall on tax for the year to be between 1 and 1.5 billion. But that would still leave the broader measure of the Government accounts (the GGB) still in substantial surplus.
On the expenditure side current spending is very close to target but capital spending was up 51.5% in the first nine months and was 328 million ahead of target.
Commenting on the results, the Tαnaiste and Minister for Finance, Brian Cowen, T.D., said:
Income tax and corporation tax are performing well and when taken together with VAT and excise duty, the four main taxes, which were forecast to account for around 85 per cent of total taxes this year, are exactly on target.
This points to a healthy economy as was portrayed by the recent strong CSO data for the first half of the year, which showed that GDP increased by 6.7 per cent and employment rose by 3.9 per cent.
Current expenditure is very much in line with expectations and strong growth in capital expenditure largely reflects the progress being made under the National Development Plan.
However it is now expected that there will be some shortfall in overall tax revenues reflecting developments in some taxes such as stamp duty. While this will be somewhat compensated for by positive developments on other elements of the Exchequer account, an Exchequer deficit of up to 1 billion now seems likely.
The Exchequer Returns for the first nine months of the year underline the need to continue to implement prudent, sensible fiscal policies while at the same time giving spending priority to those areas which enhance our productive potential.
Pat McArdle, Chief Economist, Ulster Bank says end-Sep Exchequer Returns now definitely off target
The Department now accept that the tax undershoot will be up to a billion. With three-quarters of the year gone, the shortfall as compared with the Budget forecast is already 500 million. It is, moreover, accelerating rapidly. As late as end-July, the cumulative shortfall was only 14 million.
In the year to September, Stamp duties were 400 million behind profile they undershot in 6 of the 9 months. We can expect this pattern to continue the Dept had forecast another 1 billion receipts in the last quarter they will do well to get half that given that receipts lag transactions by a few months and the downward trend in house sales which continued over the Summer. The shortfall for the year may be close on 1 billion on our estimates.
Capital Gains Tax was down only 100 million by September, but 60% of CGT receipts, 2 billion, come in the last quarter so the position could deteriorate when these taxes are paid in November. They are difficult to forecast since they relate to gains realised in the first nine months and the stock market was booming for much of this time. This may limit the downside.
Excises continue to undershoot they are now down 225 million - though this has little to do with housing and has been evident since early in the year. Tobacco sales took a hit from the Budget hike in excises and, as we suspected, car sales have disappointed at least in so far as the Dept is concerned. Car sales are up about 5% but this is no better than last year. We do not see this trend improving.
The final tax to disappoint was VAT down 130 million. The deterioration is recent and there may be more to come as there is a substantial link to property.
The big offset is on Corporation Tax which is 300 million over target and Income Tax which is also doing well - 56 million over. These trends are likely to continue.
Current spending is again very close to target and voted capital spending, though still overshooting, is now beginning to fall back as the Department said it would. We are inclined to take their view that these major spending heads will be close to target by end-year. However, the Dept revealed that there will be savings of 0.5 billion on other, more minor, spending items, notably service of the national debt. It is unusual for the NTMA to declare their hand so early and they may well have kept something up their sleeve for their usual 31 December Press Conference.
Overall, we see tax receipts down about 1.5 billion, offset by savings on spending of 0.5 billion, to give a net deterioration of 1 billion and an Exchequer deficit of 1.5 billion instead of the 0.5 billion forecast in the Budget. The General Government Surplus, a wider and more relevant concept that includes social insurance funds and local authorities, would still be a very acceptable 0.7% of GDP, down moderately from the Budget estimate of 1.2%. This years Budget is still ok, the difficult decisions will have to be taken come December when the 2008 Budget is revealed.
