Tax receipts 2.8 billion below expectations-Hairshirt budget anticipated in December

Figures released by the Department of Finance show another sharp deterioration in the public finances last month. Tax receipts are now almost €2.8 billion short of budget time projections.The tax shortfall for 2008 will be double (€6bn) the amount predicted by Brian Cowen and Brian Lenihan a mere 7 weeks ago when they said that there would be a €3billion shortfall in taxes, according to Fine Gael's Deputy Leader and Spokesman on Finance, Richard Bruton T.D .The Exchequer deficit for the first eight months of the year was just over €8.4 billion. This is three times the figure for the same period last year.

August is the worst month on record with tax revenue over 20% short of expectation. It is anticipated that the Exchequer deficit will amount to €10 billion by the end of the year.

Total tax receipts were just under €24.8 billion, with VAT receipts running more than €1.1 billion behind expectations as consumer spending weakens. Stamp duties are almost €500m behind target and capital gains taxes are more than €400m lower than expected. The contraction in the building industry is a major causative factor here. Income tax is around €150m behind expectations.

"The Government has breached the 3% Stability Pact constraint on borrowing. It is heading for 4% borrowing in 2008 as a percentage of GDP. It will in all probability come in at 4.5%- 5% in 2009.

It is time to take out the hair shirts once more. A savage December budget is a certainty.

The excessive rise in public expenditure-13% in 2007- in the run in to the 2007 General Election has further exacerbated the situation. The Government now has nothing in reserve to stimulate the economy. All in all not a very pretty picture in the run up to Christmas

Irish Public finances take another hit in July

Embedded from RTE.IE

Worst Deterioration in the Public Finances in History Sees Taxes Fall 9% Below Target.

"- Monthly tax take was €776m (18%) short of expectations

- this is by far the worst month so far for the public finances. VAT proceeds alone were €447m (or 20%) below expectations, while all major tax heads were significantly below target.

- For the year-to-date, tax receipts are now €2.2bn (8.9%) below budget expectations.

- Only last month, the Government produced a revised budgetary forecast predicting that the tax shortfall would be limited to around €3.0bn (a 6.1% shortfall).

- But if the current trajectory for taxes continues (and there is no reason to expect it to improve), and assuming the Government manages to limit spending in line with budget allocations (which is by no means certain), we can now expect the tax shortfall to be at least €4.4bn (8.9%).

- This would equate to a General Government Balance of around €6.2bn (3.3% of GDP), suggesting that Ireland is on course to breach the EU's 3% of GDP borrowing limits this year.

- These figures represent the worst deterioration in the public finances in the history of the State."FG

Ireland-Exchequer deficit is €5.65bn for first six months as recession looms.

The Exchequer returns show a deficit of almost €5.65bn for the first half of the year (2.75% of GDP). Tax Receipts at €19.127 billion are €1.45bn lower than anticipated for the first six months of the year. The lower tax receipts are due mainly to the poor performance of VAT and capital gains tax. The tax shortfall for the full year is expected to come in at €3bn. The collapse in the house-building sector has impacted strongly on tax receipts. Only 40,000-45,000 new houses will be built this year. The folly of over reliance on this sector is plain for all to see.

Total current receipts in the first half of 2008 were €19.525 billion compared to receipts of €21.124 billion for the same period in 2007.
Non-tax revenue in the first six months of 2008 was €398 million. This compares to €310 million for the same period last year.

Brian Cowen’s Government must administer some harsh medicine. The country faces swingeing public expenditure cuts and huge rises in stealth taxes as Finance Minister Brian Lenihan attempts to grapple with the problem. Increased exchequer borrowing will also help plug the gap. In addition interest rates will remain high as the European Central Bank grapples with inflation. Increasing interest rates at this time is economic lunacy and will serve to strengthen the Euro further. This will reduce exports from the Euro zone. Irish exports have begun to lag. Much of the Euro inflation has resulted from higher oil prices. So it is arguable that interest rates should not be increased.
Tightening of lending policies by the banks will hinder investment.

Pay rises below the rate of inflation will take further steam out of the economy. There is a danger of stagflation if public expenditure cuts are too severe.
In addition unemployment has risen rapidly in recent months. It broke the 200,000 barrier last month and currently stands at c207,000. Where is the purchasing power to come from if the consumer lacks sufficient disposable income?

In recent tears public expenditure has galloped out of control. It rose by 13% in 2007 in the run in to the General Election and by 50% over four years. Huge tax receipts from the then booming building sector funded much of this. The FF/PD Government erred in not restraining public expenditure. Excessive public expenditure fuelled inflation in an economy that was already growing strongly.
It threw petrol on the fires of economic growth. Restraints in public expenditure in good times would have provided the Government with some leeway.

There has been a tendency to dump on economists who warned that this scenario would unfold. David McWilliams, Alan Aherne and George Lee in particular have come in for strong criticism. Richard Bruton FG Spokesman on Finance has long criticised Government policy. Critics were accused of talking down the economy. Of course this is utter nonsense
Interestingly George Lee was referred to today on an RTE programme as George Gloom. Attack the messenger when you do not like the message. What utter nonsense. It is time for realism.
Some debate has cantered on the dreaded “R” word. The country is either in recession or about to enter a recession. It can weather the storm.