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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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Irish Exchequer Returns for November, issued this afternoon by the Department of Finance, show a deficit for the first 11 months of this year of €22 billion, compared with just under €7.9 billion the the same period in in 2008.
Total tax receipts were just under €30.8 billion, almost €1.36 billion behind the target in the April Budget.
Last month, the Government revised down the target to €32 billion.
Exchequer statement
Analysis End November Tax Receipts
Analysis of End November Voted Expenditure
Total tax receipts are 20.8% below the figure for the same period last year, compared with a 17% fall in the first ten months.
October and November are the biggest tax gathering months.
Income tax receipts were €575m behind the April target and VAT was €750m lower.
Total spending was €42.5 billion, almost €700m behind target.
There was a 15% increase in social welfare spending related to unemployment.
The November data also show that interest payments on the national debt rose from €1.6 billion in the period to November 2008, to €2.7 billion in the first 11 months of this year.
The rise in the deficit is partly related to the capital injection of €4 billion into Anglo Irish Bank and €1.7 billion provided for the National Pension Reserves Fund.
Chartered Accountants Ireland has said that there are some encouraging signs in the November tax figures published this afternoon and that fears of a meltdown of revenue from the self employed sector have been misplaced.
The key aspect of the November figures is that they give the best indication of how the self employed sector - - professionals, small and medium sized businesses in the indigenous sector, service providers and traders are doing.
“While the income tax figures are down, and down considerably on previous years, they are not as poor as some had feared. In fact the pace of decline as evidenced at the end of October has eased with these latest numbers. The total income tax receipts from the self employed sector will be in excess of €1bn so it is absolutely critical that this sector is supported as far as possible in the forthcoming Budget.”
“There can be no doubt now that the €34.4 billion in tax receipts projected at the time of the Supplementary Budget in April will not be achieved. The final figure will be some €1.5 billion less - but not as bad as the more pessimistic estimates. In particular, it would seem that the downward trend in income tax receipts has eased,” according to Chartered Accountants Ireland Tax Director Brian Keegan.
He said the rate of economic recovery will to a large extent depend on the success of Irish indigenous business in growing trade and employment. Chartered Accountants Ireland also believes that the Minister must look for tax measures in the forthcoming Budget to stimulate income tax and VAT receipts in particular. These are clearly now the two most important strands of our tax system and account for more than two thirds of total tax receipts.
The end November VAT returns remain weak thereby adding to the case for a stimulus to consumer activity here - - bearing in mind that the UK VAT reduction is set to expire in January of next year.
IBEC senior economist Fergal O’Brien said: "The important November tax returns confirm an alarming rise in the budget deficit for 2009. The income tax receipts are particularly disappointing, despite the increase in income tax rates this year, and are indicative of the current difficulties faced by small businesses and the self-employed. The poor VAT receipts are indicative of the deflationary pressures faced by the retail sector and a sharp pick-up in cross-border shopping in recent months. The total tax take in November was €4.7 billion, 35% down on the €7.4 billion taken in November of last year - - although changes to the timing of corporation tax payments was a factor in this.
‘The widening Budget deficit also brings into sharp focus the need to achieve sustainable reductions in the public sector pay bill. At a time of increased focus on sovereign debt risks, Government must not dodge the hard decisions required in next week’s Budget. The target for cost savings must be fully delivered and the Minister for Finance must stick to his earlier commitment not to raise tax rates."
Davy chief economist Rossa White commented:
Tax revenue may beat cautious revised forecast, but will probably finish down 20% for the year
Tax revenue likely to exceed €32.5bn for 2009, down 20%
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Irish tax revenue for the key November month was reported today. It is not as important as before because payment dates for both Corporation Tax (brought forward to May) and Capital Gains Tax (pushed back to December) have been shifted around.
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Tax revenue was €1.35bn behind the April Budget estimate. The government revised down its forecast to €32.2bn in the recent pre-Budget outlook from the €34.4bn predicted in April, a shortfall of €2.2bn. That now looks too pessimistic. The final outturn is likely to miss by around €1.75bn leading to an outturn in excess of €32.5bn or a decline of 20% yoy.
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Partly as a result, the General Government deficit is likely to dip below 12% of GDP this year, slightly better than the recent estimate.
Disappointing to see capital spending lagging target; further cuts would be disastrous
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The sneaky saving of €400m so far on capital spending is another reason that the deficit may fall short of 12% of GDP. Tender prices are down and this has generated nominal savings, but further projects should have been initiated to protect vulnerable construction jobs. Current spending is some €260m behind, mainly thanks to lower levels of unemployment claimants than predicted.
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It is vital that the government does not bottle it on public pay next week (a straight pay cut is required). Cutting capital spending further to close the budget deficit would compound that potentially serious error.
Self-employed income tax returns not as bad as we feared
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Income tax from the self-employed and income tax from other sources for PAYE workers came through again this month (some of it was garnered in October). The figures weren’t too bad considering the deep recession in the early part of the year (note that the self-employed tax revenue reflects activity throughout the year). Underlying income tax fell 8.5% yoy in November alone . That was not too different from the rate of decline seen since April. It compares with the 12.8% decline in October and the cumulative income tax decline of 8.5% in the first 11 months.
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VAT is the obvious weak point: receipts are down 20.5% yoy and are €749m behind the revised April forecast (accounting for more than half of the net shortfall).
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These figures have virtually no bearing on the Budgetary arithmetic for 2010. The consolidation plan will total €4bn for next year. But in any economy where tax revenue drops 20% it puts the fiscal challenge into context. The problem is that most of that tax revenue will not return. It was a direct function of the property bubble, but financed unsustainable increases in public sector pay – a key factor that led to the gaping structural deficit. Therefore, any measures announced next week must be permanent: the situation is far too serious for gimmicks like unpaid leave (that also reduce service levels) to even be discussed.
1. Income tax comparisons have been distorted in the last three months thanks to the recent Health Insurance Legislation: this introduced a levy - collected under the stamp duty code - and a compensating age related tax credit - disbursed under the income tax code. We strip this effect out to calculate the underlying income tax returns
Ulster Bank, economist Lynsey Clemenger commented:
Tax revenue held up better than may have been expected in November…
In terms of tax intake, November is the biggest month of the year and is thus critical in shaping the end-year position. Given the weakness in the economy at present, there was scope for a significant undershoot in the month. In the event, the outturn was not as bad as may have been feared. Tax receipts came in some €284 million, or 5.7%, below the Department of Finance’s monthly plan set out at the end of April – a weak performance certainly, but not as weak as July or September when undershoots of €387 and €539 million, respectively, were observed. Both Corporation Tax and VAT were behind target to the tune of almost €140 million in November, with Excise taxes undershooting by €48 billion. Weakness in these tax heads was partially offset by Income Tax and Capital Gains Tax running slightly ahead.
In cumulative terms this leaves the tax intake for the year to November at €30.8 billion. This is some €1.36 billion or 4.2% behind plan, with VAT and Income Tax accounting for the bulk of this underperformance. In September, the Department revised its tax projections for this year to incorporate a shortfall of €2 billion relative to the April forecast. This left the full-year estimate at €32.4 billion. On the basis of the tax revenue performance last month, we noted that the Department’s revised estimate looked on the pessimistic side. The latest tax revenue numbers provide further support to this view, with the end-year shortfall looking more likely to come in around €1.5 billion.
Modest catch-up in capital spending, but significant undershoot relative to plan remains…
Total voted spending continues to be reigned in, with the November outturn showing expenditure down 2.5% compared with the Jan-Nov period last year. This is the fourth month running that total spending growth has been in negative territory in annual terms. Moreover, the 2.5% drop in the latest numbers represents a greater degree of restraint compared with previous months. Not only is spending continuing to run below year-ago levels, but it is also behind the monthly expenditure profile published by the Department in April to the tune of almost €700 million (1.6%).
However, as we have been highlighting for some months now, the total hides significant differences in the two main categories of spending. In keeping with the pattern evident since earlier in the year, the bulk of the spending shortfall continues to be occurring on the capital side. The cumulative shortfall is now at €432 million, which is 7.1% behind planned expenditure. A month ago the shortfall in this area was €475 million, so there was some modest catch-up in November. However, with only one month of the year left, it remains to be seen if the rest of this shortfall will be made up. On the current spending side, the cumulative undershoot relative to target increased to €260 million. Going forward we hope to see ongoing restraint in this category of spending, with lower than expected numbers the Live Register easing some of the pressure also.
Government’s revised tax projections look on the pessimistic side…
While there was undoubtedly some further slippage in tax revenues in November, the extent of the weakening looked modest especially given the potential for a more significant undershoot in the most important tax month of the year. Disappointingly, VAT and Excise taxes made up a significant proportion of the monthly shortfall, hinting at ongoing weakness in consumer spending. However, today’s figures do suggest that the tax position by the end of the year will not be quite as bad as the Department of Finance signalled in its updated projection in October. In terms of spending, the bulk of the shortfall is continuing to take place on the capital side, albeit that greater signs of restraint were evident in current spending in November.
