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News : Irish Economy Last Updated: Dec 3, 2010 - 5:24:05 AM

Irish Exchequer deficit at end-November 2010 was €13.3bn; Corporation tax was €589m above target
By Finfacts Team
Dec 2, 2010 - 5:02:21 PM

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The Irish Exchequer deficit, at end-November 2010 was €13.3bn compared to €22.1bn at end-November 2009. The four-year National Recovery Plan 2011-2014, published last week, set out that the Exchequer Borrowing Requirement (EBR) in 2010 would be €18.8bn, in line with the December 2009 Budget day target. Corporation tax was €589m above target.

The Department of Finance said this afternoon that the €8.8bn year-on-year improvement in the Exchequer deficit is largely due to payments of €3bn to the National Pensions Reserve Fund (NPRF) and €4bn to Anglo Irish Bank, which were made in 2009 and not repeated in 2010.

Taxes are just under €1.3bn or 4.1% below the same period last year with net spending €1.8bn or 4.2% lower. Non-tax revenue is up €1.9bn in the year, due primarily to €1.3bn in fees from the State bank guarantee schemes and increased surplus income of the Central Bank. On the non-voted current spending side, debt interest costs are just over €700m higher year-on-year.

Tax receipts in the period to end-November amount to €29.5bn. This is €470m or 1.6% above target. The Department said November is the largest month of the year for tax revenues and all tax-categories performed above expectations in the month. On a cumulative basis, all taxes with the exception of income tax are above target in the first eleven months. A corporation tax surplus of €589m, combined with smaller surpluses in the other tax-heads, most notably excise duties and VAT, offset the income tax shortfall of €356m. Income tax from the self-employed in the month of November performed better than expected although PAYE receipts came in below target.

The year-on-year rate of decline in tax revenues now stands at 4.1%. The National Recovery Plan 2011-2014 forecast a €450m surplus in tax revenues for the year as a whole. The end-November tax figures are in line with this estimate.

Total spending at end-November 2010 is €40.8bn, which is €1.8bn or 4.2% below the same period in 2009. The Revised Estimates Volume projected a decline of 1.9% in total net voted expenditure in 2010.

Net current spending at €36.4bn is slightly below target (-€166m or -0.5%) and is €495m or 1.3% down year-on-year, despite the large anticipated increase in the current spending of the Department of Social Protection due to high unemployment.

Net capital expenditure, at just under €4.4bn at end-November is €1.3bn or 23% below the corresponding period in 2009. It is €851m or 16.3% below target. The expected savings in capital expenditure at year-end are likely to be largely offset by the costs associated with staff redundancies at the HSE.

End November Exchequer Statement (pdf)

End November Analysis of Taxation Receipts  (pdf)

End November Analysis of Net Voted Expenditure  (pdf)

NCB Stockbrokers economist, Brian Devine, commented: "With regard to the banking sector drag, the ECB confirmed that they would provide fixed rate full-allotment auctions for 3 month money throughout Q1 2011. The ECB also stated that it would continue conducting its main refinancing operations (1 week) and one month operation as fixed rate full-allotment auctions for 'as long as necessary.'

In simpler terms this means the Irish banks with sufficient eligible collateral can tap the ECB for as much funds as they desire at (currently) 1%, thus aiding funding cost for the banks and postponing the inevitable squeeze on net interest margins. The longer these measures remain in place by the ECB the better for the Irish banks and therefore the Irish sovereign.

As frustrating as the banking sector has been, it is worth remembering that the rest of the economy is still operating and trying to fight its way out of the recession despite the continued damage to confidence. The decent tax data comes on the back of an expansion in the manufacturing PMI in November and also a decline of 4,200 persons from the Live Register (unemployment claims), which saw the unemployment rate fall from 13.6% to 13.5%."

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