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Source: Davy Research |
The Irish Exchequer Returns for the first four months of 2009, published this afternoon by the Department of Finance, shows that there was an Exchequer deficit of €7.3 billion for the first four months of this year. This compares with a deficit of €3.7 billion in the same period a year earlier. Taxes are down 24% on the same period in 2008.
Total tax receipts are off 24% from a year earlier at just over €10 billion.
Total day-to-day spending rose to €15.6 billion, with social welfare spending rising 13%.
There was a 6% fall in income tax receipts to €3.8 billion and stamp duty receipts were down 64% to just under €245m.
VAT receipts are down more than €1 billion to €3.83 billion - a fall of 21%.
Rossa White, Chief Economist, Davy Research commented: Pace of decline of tax revenue almost unchanged pre-Budget
Tax figures did not deteriorate much further before Budget
- Recent data have suggested that the pace of decline of economic activity is no longer accelerating. These tax data add to that impression.
- Tax revenue was 23.9% lower in January-April than in the same period of 2008. At the end of March, revenue was 23.4% behind.
- Note that these figures do not incorporate Budget changes to income tax that kicked in at the start of May. Changes to excise and VAT would barely have boosted the numbers (those changes came into effect on April 7th but were minor).
VAT worst culprit; while income tax has held up quite well
- Income tax has held up quite well, reflecting the income levy introduced in the October 2008 Budget. There was perhaps some early payment of self-assessment income tax ahead of the April Budget.
- Excluding income tax, other tax revenue was down 31.7% at the end of April versus 29.9% at the end of March. VAT was some €1bn lower than last year in the first four months while excise duty, stamps, CGT and corporation were all €400-600m behind.
Current expenditure still has to be tackled
- The government took the disappointing short-sighted decision to slash capital spending in the Budget. But it has not yet properly tackled current spending.
- That is borne out in the data: current spending had actually increased 4.5% year-on-year by end-April. In contrast, capital spending fell 14.4%.
- The next fiscal measures must focus on current spending, primarily public pay - where the premium over the private sector is widening by the day.
Lynsey Clemenger, economist, Ulster Bank commented: Rate of decline in tax revenue stabilises for third month running:
In the year to April, cumulative tax receipts were down €3.2 billion, or 24%, on the corresponding period in 2008. Therefore, the overall situation was little changed from end February (-24%) and end March (-23%), which is of some comfort. Indicative of the reluctance of Irish consumers to spend, the falloff in VAT receipts has been the main drag on tax revenue in the year so far, representing €1,043 million, or a third, of the total shortfall. Stamps and Capital Gains Tax, the main property related taxes, were down €838 million, making up a further 26% of the shortfall.
As contained in the April budget, 2009 tax revenue is now estimated at €34.4 billion, close to the €34 billion pre-Budget estimate. This represents a fall of 30% in the original projected tax intake on 2008 and a 15.6% fall in the 2009 projected tax revenue. It is important to point out that receipts in the first half of 2008 were considerably stronger than in the second half. Therefore, one would have expected a sharper decline in the first half of this year and a more moderate second half. For this reason, we have no reason to seriously question the Department’s tax forecasts at this stage.
Four taxes account for 94% of the fall in April…
Three months later than usual, on April 28th, the Department produced the monthly profile of revenue and expenditure. In the month of April, tax receipts were only a mere 1.7% behind profile (see table below), however this was to be expected, as the tax revenue outturn for the month was essentially known when the profile was published. For this reason, we look at the falloff on 2008 levels, as it provides a clearer indication of the deterioration in the public finances that took place in the month.
On this basis, tax receipts were down €569 million, or 26%, by comparison with April 2008. €214 million of this was accounted for by VAT, followed by Excises €129 million, Stamp Duties €104 and Corporation Tax €86 million. Together, these four taxes made up 94% of the tax fall in the month, while the other tax receipts came in close to their April 2008 levels. However, Income Tax, which was down €39 million, or 4.3%, on April last year, was boosted by the new levy which probably added €60 million in the month. Without this, Income Tax receipts in April would have been down a greater 11%, and the total down 29%.
Government have some room to manoeuvre…
Current spend was up 4.5% in the first four months of the year, a slowdown from the 8.2% rate of increase in March. Capital spend was down 14.5% on April 2008, which probably reflects timing issues.
While still down 24% on last year, the April figures confirm that the fiscal situation did not deteriorate further; in fact the rate of decline has now been broadly stable for three consecutive months. Indeed, given the 30% forecast decline for the full year, it would seem that the Government have some room to manoeuvre in the event that the economy weakens further.
