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| Minister of Finance Brian Lenihan giving a TV interview at the Fianna Fáil Parliamentary Party gathering in Athlone, September 14, 2009.
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At end September, the Irish Exchequer deficit was €20.1 billion. Tax revenue, at €23.7 billion was €965 million or 3.9 per cent behind target. The deficit was €9.4 billion at end-September 2008. Total net voted expenditure at €34.7 billion was €514 million or 1.5 per cent less than target.
Exchequer Statement September 2009
Analysis of Net Voted Expenditure - September 2009
The Department of Finance revised down its target for the General Government Deficit, which it now expects to be -12 per cent of GDP compared with -10.75 per cent it forecast in the April Emergency Budget, which was officially called a supplementary Budget.
The Government said in April that tax increases and other measures introduced in the supplementary Budget would cut the deficit for the year from a forecast of -12.75 per cent to -10.75 per cent.
Commenting on the returns the Minister for Finance Brian Lenihan, TD said: “The end-September Exchequer returns published today show the stabilisation measures the Government has introduced so far are working.
Total net voted expenditure is slightly less than anticipated for this stage of the year, demonstrating the Government’s effective management of public spending. Furthermore, given the easing in the rate of increase in unemployment, which has been stable for the last two months, it is expected that some savings will be achieved on the sums allocated for the Live Register. This will improve the underlying position. While there are pressures emerging in other areas, Departments are expected to manage within their overall allocations.
The likely taxation shortfall will be in the region of €2 billion for the year with Income Tax and VAT continuing to be weak. This weakness in taxation receipts reinforces the need for expenditure reductions to stabilise the position in the public finances. We must reduce public spending to restore sustainability over the medium-term and return to the path of economic growth. On the basis of the emerging trends, the General Government Deficit for 2009 is now forecast to be in the region of -12% of GDP.
The economic and financial conditions globally are showing signs of improvement. The recent success of our two main banks in raising funds without the use of the State Guarantee is evidence of the improved conditions and positive international sentiment towards the Government’s plan to deal with the crisis in our financial system. The establishment of NAMA will position the banks to lend money into our economy.
The consensus of economic forecasters is that the outlook for the Irish economy is now better than it was at Budget time. If we continue to take the correct action as outlined by the Government, we will see economic growth in the second half of 2010.”
At end-September 2009, the Exchequer deficit is €20.1 mbllion, compared to €9.4 billion at end-September last year. The year-on-year deterioration in the deficit of some €10.8 billion is primarily explained by a decline in tax receipts of €4.8 billion, the €4 billion payment to Anglo Irish Bank and €1.7 billion in respect of the frontloading of the annual contribution to the National Pensions Reserve Fund (NPRF).
Revenue
Total current receipts at end-September amounted to €24.4 billion compared to receipts of €29.1 billion for the same period in 2008.
Tax Revenue, at €23.7 billion is €965 million, or 3.9 per cent, behind target at end-September and is 16.8 per cent down year-on-year.
Non-tax revenue in the nine months to end-September was €659 million. This compares to €603 million for the same period last year.
Capital receipts to end-September amounted to €1.4 billion compared with €1.3 billion for the same period last year.
Expenditure
Total net voted spending at €34.7 billion at end-September was €514 million or 1.5 per cent less than the published target. The year-on-year decline in the first nine months of 2009 was 1.3 per cent.
Net voted current spending at end-September at €30.3 billion was €106 million or 0.3 per cent less than the published target. Year-on-year growth in the first nine months of 2009 was 0.7 per cent.
Net voted capital spending at end-September at €4.4 billion, was €408 million or 8.5 per cent less than the published target. The year-on-year decline in the first nine months of 2009 was 13.1 per cent.
Non-voted capital expenditure at end-September was €7.0 billion. This compares to €1.3 billion in the same period of last year. The year-on-year increase is due to the payment of €4 billion to Anglo Irish Bank in 2009 and the increase of €1.7 billion in the payment to the NPRF (a total of €3 billion has been paid to the NPRF in 2009 as part of the bank recapitalisation programme, at this stage last year some €1.3 billion had been transferred to the NPRF).
Expenditure on Central Fund Services totalled €4.2 billion at end-September compared with €3.4 billion in the same period last year.
IBEC Senior Economist Fergal O'Brien commented: "There is no room for complacency in our efforts to correct the public finances. The September returns show that activity remains exceptionally weak in the Irish economy and Budget 2010 must deliver immediate and substantial measures to close the gap between Government expenditure and revenue.
"Postponing the necessary adjustments in the public finances will only result in a protracted period of economic malaise, whereas decisive action on current expenditure in the December Budget will put the economy on a much sounder footing as the global economy picks up in 2010.
"The weakness of the income tax and VAT receipts in September show that conditions in the all important employment and consumption sectors of the economy remain very challenging. The September redundancy numbers also published today demonstrate the ongoing weakness in the Irish labour market, despite the more positive Live Register outcome earlier in the week."
Davy chief economist Rossa White commented:
Deficit to hit 12% of GDP according to new estimates
Government expect €2 billion tax shortfall
- With three months of the year to go, the Irish government now expects a tax shortfall of €2 billion. That compares with the revised estimate in April of €34.4 billion.
- The underlying deterioration versus target (i.e. ex-corporation tax) is running at about €300m per month in the last three months. Note that total tax returns are some €965 million behind, but excluding -corporation tax the figure is €1.19 billion.
- We assume that corporation tax will be in line at year end (there is payback between now and year-end for the cash flow boost from the timing change earlier in the year). So the underlying trend is worth focusing on. If the shortfall runs at about €300 million per month, then a full year miss of €2 billion is about right.
- The self-assessment income tax returns in October and November could exacerbate the shortfall. These will not be pretty. Note that the self-employed sector is geared into the construction collapse.
Deficit may reach 12% of GDP, 1.25pp higher than forecast
- The Government suggests that the deficit will reach 12% of GDP. Its unemployment forecast is too high, so that may save €400 million in social welfare payments based on our analysis. But whether this has been factored in is not clear. Spending is running well behind, especially on capital. We would not like to see the deficit being reduced by the failure to implement the public investment programme in full.
Income tax down roughly in line with wage bill, but September was awful
- We reckon the total wage bill across the economy will decline 11% on average in cash terms. So far this year, income tax is down 9.4%. But that includes the new income levies. The numbers seem to stack up. But September was awful: income tax fell fully 22% year-on-year. That suggests employment and wages remain under pressure; they will lag trends in activity.
- Our seasonally adjusted VAT estimates suggest that receipts have actually stabilised month-on-month.
Ulster Bank economists Simon Barry and Lynsey Clemenger commented:
Tax receipts are now on track for a €2 billion undershoot…
Following a better than expected month in August, a notable deterioration in tax revenue was evident in September. Receipts came in some €539 million, or 15.6%, below the Department of Finance’s monthly plan set out at the end of April - by far the worst performance in terms of tax intake in any month of the year thus far.
VAT and income tax were the main weak spots in the month, both of which were €217 million behind plan. Indeed, VAT receipts have represented the primary drag on tax revenue in the year to date, with this tax head alone representing 67% of the total shortfall. This is a disappointing development as it hints at ongoing weakness in consumer spending; it will be interesting to see if this is validated by the retail sales numbers in coming months.
Another main source of the tax undershoot in the month of September was Corporation Tax, coming in €182 million behind the Department’s expectations. However, some weakness on this front was not totally unexpected given the impressive outturn in August. Somewhat surprisingly given their poor performance in the preceding months, Stamps provided a partial offset in September, coming in €163 million ahead of plan.
The extent of the weakness in tax revenues in September has had an important impact on the revenue and indeed overall budgetary position for the year as whole. In cumulative terms, tax receipts stood at €23.7 billion in September. This is almost €1 billion behind plan and down 16.8% on last year. This means that the Government’s end year tax revenue target of €34.4 billion, or expected shortfall of 15.6% on last year, now looks unattainable. The Government has itself conceded that the actual full year outcome is more likely to be of the order of €32.5 billion; that is, €2 billion behind plan. This revised estimate is not unreasonable in our view, given the latest trends. However, estimating the likely end-year outturn remains a difficult task before November, as it is the largest tax month of the year by far.
| |
Jan-Sep 08 |
Jan-Sep 09 |
Deviation from Profile |
% chg. on Jan-Sep 08 |
| EUR mn |
Outturn |
Govt. Profile |
Outturn |
€ mil |
% |
|
| Customs |
194 |
170 |
151 |
-19 |
-11.1% |
-22.2% |
| Excise |
4,151 |
3,294 |
3,312 |
18 |
0.6% |
-20.2% |
| CGT |
694 |
281 |
219 |
-62 |
-21.9% |
-68.4% |
| CAT |
239 |
213 |
193 |
-20 |
-9.2% |
-19.1% |
| Stamps |
1,358 |
659 |
680 |
21 |
3.1% |
-50.0% |
| Income Tax |
8,691 |
8,353 |
7,874 |
-479 |
-5.7% |
-9.4% |
| Corp Tax |
2,122 |
2,391 |
2,601 |
210 |
8.8% |
22.6% |
| VAT |
10,998 |
9,310 |
8,657 |
-653 |
-7.0% |
-21.3% |
| Total |
28,478 |
24,671 |
23,706 |
-965 |
-3.9% |
-16.8% |
…total spending also running behind plan with the capital side continuing to account for the bulk of the shortfall…
On the spending side, overall expenditure continues to run at a level lower than originally planned for. Aggregate voted spending is 1.5% lower than the Department’s profile, amounting to savings relative to plan of over €500 million.
While both current and capital spending levels are lower than budgeted for at this stage of the year, it remains the case that it is a shortfall on the capital side that is accounting for the majority of the difference. Current spending is running €100 million, or just 0.3%, behind plan – a deviation that is not hugely material in the bigger picture. Indeed, given that the numbers on the Live Register are substantially below where they were expected to be in the Government’s April forecast, it is somewhat surprising that greater efficiencies haven’t come from the current side. At the time the Budget was framed, the Live Register was expected to average about 440,000 this year, but the latest trends point to something not far from 400,000. Despite this, however, current spending in the Department of Social & Family Affairs is actually running €40 million higher than plan so far this year.
Meanwhile, total voted capital spending in the nine months to September was €4.8 million, down some 13% on the same period in 2008. The deviation from profile widened again on the latest numbers, with the cumulative shortfall so far this year now standing at €408 million or 9.3%. Of course, it can be the case that capital spending associated with big projects can result in large lumpy payments which can quickly unwind an apparent shortfall in spending. So it may be the case that capital spending returns to planned levels by the end of the year; we await the coming month’s numbers for further updates on how this theme evolves.
In an accompanying statement, the Minister says the fact that total spending is less than anticipated demonstrates the Government’s effective management of public spending. However, we continue to have concerns that the clear majority (75% in fact) of the savings have, thus far at least, come through on the capital budget, where the spending taps are easier to turn off.
…overall deficit target set to be missed as the December Budget is shaping up to be even tougher
Overall, the latest Exchequer numbers reveal a material worsening in the State’s revenue position, a deterioration that is only partially offset by a tightening of the reins on the spending side. Assuming no further deterioration, the Government faces a €2 billion shortfall in tax receipts. This has important implications on a number of fronts. First, this year’s budgetary targets are now certain to be missed, with the minister acknowledging that the General Government Budget balance for the year is likely to show a deficit of around 12%, up from the 10.75% estimated at Budget time. Second, the extent of the adjustment required to achieve the same medium-term target has increased. Getting from a deficit of 10.75% this year as per the previous estimate down to the target level of 3% by 2013 was always going to be a tough plan to deliver on. The Minister’s task just got tougher, with the latest slide in tax revenues making the arithmetic for the December Budget looking decidedly more difficult.
The stated aim of the Minister, as per the multi-year plan published in the April Budget, has been to implement a package of corrective measures in the upcoming budget totalling €4.75 billion on a full-year basis. These latest developments mean that this objective is now probably best seen as a minimum to be achieved.
