The Tánaiste and Minister for Finance, Brian Cowen T.D.

The latest official forecast for Irish tax revenue in 2007 shows a deficit of €1.75 billion, compared with the target of Budget 2007 last December, due mainly to the growing slump in residential housing construction.

The yield from stamp duties is projected to fall €730 million or 18.6% below the budget target, according to the White Paper on Receipts and Expenditure 2008 published by the Department of Finance on Friday.

The options for Budget 2008 have been narrowed and the expected fall in economic growth in 2008, could well be much worse than expected given the continuing credit crisis which worsened on Friday with Euribor inter-bank interest rates exceeding 4.8% - a 6-1/2 year high. In 2001, the benchmark ECB interest rate was 4.75% while the credit crisis margin is on a current benchmark of 4.00%.

Last week, before the downward revision in tax receipts, we referred to the consensus expectation of economists that following a slump in growth in 2008, that the listing Irish economic ship will sail towards calmer waters in 2009 with a pick-up in housing output. However, nobody simply knows the extent that the impact of the housing construction sector has been in the huge growth in domestic service activity in recent years. From newspaper advertising to the pub trade, its tentacles are wide and far. So, don't be surprised if the storm clouds will not neatly dissipate in December 2008.

Looking at the more long-term, with the National Development Plan infrastructural programme completed and no windfall tax gains from huge housing output to support big State funded R&D budgets and much else, where will the engine of growth be?

Don't fall for easy spin about trade with Asia! 

Tax revenues in 2008 are forecast to rise by just 3.1%, at current rates and the Tánaiste and Minister for Finance Brian Cowen has said that he plans to raise current public spending by 8% in 2008 and to maintain National Development Plan public capital spending growth at 12.5%.

Total tax receipts in 2007 are forecast at €47.3 billion, 3.6% lower than the €49.1 billion tax revenue target in Budget 2007.

In October, the Department of Finance in its Pre-Budget Outlook, projected the tax shortfall for the year at €925 million but just over a month, the shortfall has almost doubled to €1.75 billion.

The Exchequer deficit for 2007 is projected at €1.6 billion, more than €1 billion higher than the planned deficit of €546 million announced in December 2007.

Income tax is the only key tax that is not below the revenue targets set in the 2007 budget.

Receipts from stamp duties in 2008 will fall by a further €200 million to €2.95 billion compared with the 2007 forecast outturn.