Irish Economy
Irish Exchequer deficit at end-February 2011 was €1.94bn; Tax revenues were up 2.2%
By Finfacts Team
Mar 2, 2011 - 4:55 PM

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The Irish Exchequer deficit at end-February 2011 was €1.94bn compared to €2.41bn in the corresponding period in 2010. Tax revenues were up 2.2%.

The €462m improvement in the Exchequer deficit was due primarily to tax revenues being up €104m year-on-year, net voted expenditure being €171m lower, Exchequer debt servicing costs being some €259m lower (see explanation below), offset to some extent by a reduction in capital receipts of €81m.

Tax Revenue

  • Tax revenues at end-February amounted to €4.84bn - - up €104m or 2.2% above the same period in 2010. Year-on-year increases in income tax -- primarily due to the introduction of the Universal Social Charge (USC) and other Budget 2011 measures - - and excise duties offset relatively minor year-on-year declines in VAT and corporation tax

  • Tax revenues were €128m behind target at end-February, primarily due to a VAT shortfall of €119m. Following a relatively strong performance in the VAT-due month of January, the non VAT-due month of February was weak. Taken together VAT receipts in January and February were slightly below the corresponding period last year.

  • The Department of Finance said the income tax measures introduced in Budget 2011, including the new USC impacted on tax revenues for the first time in February. Income tax receipts were up 25% year-on-year in the month albeit slightly behind target at end-February (-€45m). PAYE receipts in the month of February amounted to €676m, some €38m or 6% up year-on-year. While PAYE receipts in February show the impact of the income tax measures introduced in Budget 2011, they do not include receipts from the USC and therefore allow for a comparable year-on-year analysis to be made.

  • Excise duties were €43m or 7.2% above target in the first two months of the year. Corporation tax receipts were €23m below target but the first significant payment dates for corporation tax in 2011 are not until the May/June period.

Voted Expenditure

  • Total net spending at end-February, at €7.02bn, was €171m or 2.4% down year-on-year. Net capital expenditure was €392m or 52.4% down year-on-year whereas net voted current spending was up €221m or 3.4%. The year-on-year comparison for net voted current spending is impacted upon by the reclassification of health levy receipts to form part of the new USC. This has the effect of increasing net voted current expenditure.

  • Total net spending was €290m or 4% below target. Net voted current expenditure was €244m or 3.5% behind profile with the main underspend on the Agriculture, Fisheries and Food Vote, due to the earlier than expected payment of receipts from the EU.

  • Net capital expenditure was €47m or 11.6% down on profile at the end of February, primarily due a €28m shortfall in expenditure of the Transport Vote.

Debt Servicing

The Department said the Exchequer debt service outturn in the period to end-February was €104m, down some €259m year-on-year. However, the department said the majority of the funds used to service the national debt in the early months of 2011 are coming from the Capital Services Redemption Account (CSRA) rather than the Exchequer. The use of the CSRA in this way was flagged at Budget time. The full debt service cash cost (including CSRA) was €626m, some €264m above the figure at end-February 2010, reflecting the servicing of the additional debt burden.

Exchequer Statement End February

End February Analysis of Tax Receipts

End February Analysis of Net Voted Expenditure

Source: Davy Research

Davy economist, Conall MacCoille, commented:

Tax revenue behind target

  • Tax revenues at end-February were €4.84bn, 2.2% higher than the same period in 2010 but €128 behind the government tax projections for this stage of the year;

  • The shortfall was concentrated in value added tax receipts which were €120m behind expectations. This weakness raises concerns about the strength of consumer spending in 2011;

  • Income tax and corporation tax receipts were €45m and €23m behind but were partly offset by higher than expected excise duties. Overall tax revenue remains broadly on track to meet the government's targets.

Budget measures begin to push up on tax revenue

  • Tax measures introduced in Budget 2011 including the new universal social charge had an impact for the first time on the February receipts;

  • Income tax receipts were 25% higher than in the corresponding month of 2010, albeit slightly behind the expected target for this stage of the year.

Government expenditure cuts are being implemented

  • Voted expenditure was €7.0bn at end February, €2.4% lower than the corresponding period of 2010;

  • Voted capital expenditure was 52.4% lower than in 2010;

  • Overall voted expenditure was 4% lower than the expected target for this stage of 2011.

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