European Central Bank President Jean-Claude Trichet (on right) welcomes Irish Finance Minister Brian Lenihan to the 10th anniversary celebration of the ECB, in Frankfurt on Monday, June 02, 2008.

Ireland's Exchequer figures for August from the Department of Finance today show that tax receipts now almost €2.8 billion short of target, signalling a further sharp deterioration in the Irish public finances with an expanding deficit.

The Exchequer deficit for the first eight months of the year was just over €8.4 billion, three times the figure for the same period last year.

Total tax receipts were just under €24.8 billion, with VAT receipts at more than €1.1 billion behind target as consumer spending weakens. Stamp duties are almost €500m behind target and capital gains taxes are more than €400m lower than expected.

Income tax is closer to target and is just down €150m.

The tax shortfall for the year could exceed €5 billion. This is far worse than the Government had anticipated in July, when it had projected a tax shortfall of €3 billion for the year, but a rapid slowdown in consumer spending has hit VAT receipts, while the dramatic slowdown in stamp duty and capital gains tax receipts has continued due to the property slump.

Rossa White, economist at Davy, commented today: Revenue now 10% behind target; deficit breach almost certain, but not of concern because the economy needs a stimulus

• The same rapidly deteriorating trend in tax revenue continued in August. That situation is set to persist for many months yet.

• Revenue is now 10% behind the original government projection at the start of 2008.

• Much of the damage has been done in the last two months alone. At the half year stage, revenue lagged the forecast by €1.45bn; now it is €2.76bn behind.

• We expect the property-influenced categories of VAT, stamp-duty and capital gains tax to miss by about €3.5bn by year-end. At this stage, they trail the budget estimate almost €2.1bn. Note that capital gains tax returns in the salient November month (which usually accounts for 50%+) will be decimated.

• The other categories are less certain. Worryingly, income tax returns are inching below forecast. That will only get worse thanks to a weak labour market and especially when self-assessment returns are made.

• Perhaps corporation tax may surprise, but that is less likely due to sluggish exports and construction woes.

Source: Davy

• If tax revenue misses by €4.5bn it is almost certain that we will breach the 3% GGB limit in 2008.

• But fiscal stimulus is now imperative, ideally before December's Budget. We need to negotiate some leeway for 2008 and 2009 with the EU Commission.