Irish Exchequer deficit was €18.74bn in 2010; Interest on National Debt at €4.8bn was over €1.6bn higher than in 2009

Irish Economy
Irish Exchequer deficit was €18.74bn in 2010; Interest on National Debt at €4.8bn was over €1.6bn higher than in 2009
By Finfacts Team
Jan 5, 2011 - 5:19 PM

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Minister for Finance Brian Lenihan photographed at Government Buildings with a copy of Budget 2011, Dec 07, 2010

An Irish Exchequer deficit of €18.74bn was recorded in 2010. This compares to an Exchequer deficit of €24.64bn in 2009. Interest on the National Debt in 2010, at €4.8bn was over €1.6bn higher than in 2009

Budget 2010, published in December 2009, estimated the Exchequer deficit in 2010 at €18,78bn. The actual Exchequer deficit in 2010 was €18,74bn, some €35m better than planned. The 2010 outturn of €18,74bn compares to €24,64bn and the Department of Finance says the fall points to an improvement in the Exchequer position.

The large year-on-year fall in the Exchequer deficit was expected and is primarily attributable to the non-reoccurrence in 2010 of two large payments in 2009 (i) a €4bn capital injection into Anglo Irish Bank, and (ii) a €3bn payment to the National Pensions Reserve Fund (NPRF) as part of the bank recapitalisation programme.

Non-tax revenue was up €1.9b in 2010 due to fees from the Bank Guarantee Schemes and increased Central Bank surplus income.

The cost of servicing the National Debt in 2010, at €4.8bn was over €1.6bn higher than in 2009.

Tax Revenue

€31.73bn in tax receipts were collected in 2010. This was €703m or 2.3% above the target set in Budget 2010.

The year-on-year rate of decline in tax revenues in 2010 was 3.9%. By contrast, in 2008 it was 14% and in 2009 it was 19%.

A significant corporation tax surplus of €764m combined with smaller surpluses in excise duties, customs, VAT and capital gains tax more than offset a €254m shortfall in income tax and minor shortfalls in stamp duty and capital acquisitions tax.

Voted Expenditure

Total net voted expenditure in 2010 at €46.43bn, was €729m or 1.5% below the 2009 level.

Current expenditure, at €40.52bn was €261m or 0.6% up year-on-year. Capital expenditure, at €5.92bn in 2010 was €990m or 14.3% below the 2009 level. It was €82m or 1.4% below target.

End Year Exchequer Statement

Analysis of End Year Tax Receipts

Commenting on the end-2010 Exchequer Returns the Minister for finance Brian Lenihan said: “The Exchequer deficit for 2010, at €18.7bn, is in line with the Budget 2010 target set in December 2009 and confirms that our public finances have stabilised.

Tax receipts in 2010, at €31¾bn were some €700m above the Budget 2010 target with the surplus primarily driven by a solid performance from corporation tax.

It is to be welcomed that three of our 'big four' tax-heads – VAT, excise duties and corporation tax – performed above expectations. While income tax receipts fell just over 2% short of their target, it is encouraging that the weakness evident earlier in the year did not develop further, and that income tax receipts rallied somewhat in the latter months of the year.

On the spending side, overall net voted expenditure at €46.4bn was over €700m below the level recorded in 2009, reflecting the ongoing tight control of public spending. While day-to-day spending was marginally ahead of target in the year, this is due to a shortfall in Departmental receipts rather than overruns in spending.

Over €5.9bn was spent on capital projects in 2010, a significant amount given the more limited resources now available. Capital spending was managed within the limits set out at the beginning of 2010.

The Exchequer Returns for 2010 confirm my analysis that the public finances have stabilised. These figures in tandem with the encouraging economic data for the third quarter of 2010, means we enter 2011 on the road to economic recovery and that the targets set in Budget 2011 are achievable.

The Government has consistently identified export-led growth as the strategy that will return this economy to growth and generate jobs. This strategy is working thanks to the improvement of competitiveness, and the flexibility and adaptability of the Irish economy. Exports in 2010 were at an all time high and represented growth of 6.2% on 2009. This strong performance was particularly positive in the manufacturing and agri-food sectors.

As a State, we continue to borrow more than is sustainable but provided we continue to address this and other related issues on the basis of the National Recovery Plan, there are real grounds for optimism about the Irish economy ”

Robbie Kelleher of Davy Research commented:

Tax receipts are over €200m better than estimated at Budget time

The release of Exchequer Returns for the full year 2010 show that tax receipts were over €200m better than estimated on Budget day in early December. The bulk of the excess returns come in higher receipts from VAT, excise and corporation tax. The rest of the tax headings were broadly in line with the December estimates.
This means that tax receipts for the year were more than €700m better than forecast in Budget 2009. Corporation taxes and excise duties were €764m and €163m respectively ahead of the original targets.
This better-than-expected performance from excise duties adds to other evidence that consumer spending may not have been as badly affected by recent financial events as had been feared.

Spending was also better than forecast

Current spending was €440m lower than estimated on Budget day but was still €231m higher than the original estimate.
Having been behind target all year, capital spending was just €82m short of the original target but was still down 14% on 2009.

Overall deficit in line with expectations

The original forecast for the Exchequer Borrowing Requirement (EBR) was €18,780m. The eventual outcome was €35m below this.
This gives increased confidence that the targets in the four-year plan are achievable – a key condition of any return of confidence in Ireland by financial markets.

IBEC chief economist Fergal O'Brien said: "Tax receipts finished the year some €700m ahead of expectations - almost entirely due to the strong performance of corporate tax revenues. Tax revenues from the sector in 2010 were 24% ahead of forecast and were actually marginally ahead of the 2009 outturn. The only other tax head meaningfully ahead of target in 2010 was excise but this was partly due to the excise increases in Budget 2011. A fall in cross border shopping during the year also contributed to the somewhat better than expected outcome.

"Income tax remains the main area of weakness - it was €250m below target and almost 5% down on the 2009 outturn. Its performance improved somewhat in the latter months of the year, however, and in December it was actually €100m ahead of forecast for the month. Coupled with fairly positive Live Register numbers in recent months this provides a source for optimism for 2011," concluded O'Brien.