Surge in Government spending creates two-month income shortfall of €67.3m.
A surge in Government spending has sent the Exchequer finances into the red for the first time in four years.
According to Department of Finance figures for the first two months of 2002, the Exchequer recorded a deficit of €67.3 million compared with a surplus of €1.3 billion in the same month last year.
As the general election nears, economists are warning that unless Government spending is reigned in, the Exchequer will remain in the red by the end of the year.
IBEC chief economist, Mr David Croughan, said the figures showed the Government was showing no signs of "getting its house in order" in terms of spending.
In the two-month period Government spending increased at a rate of 22.4 per cent, significantly higher than its own forecast that spending growth would be held at 14.5 per cent this year. The Department of Finance has indicated that much of this increase was due to spending in the health sector. The rise in Government spending comes at a time when weaker economic conditions are affecting tax revenues, particularly income taxes which have been reduced by job losses in the economy.
The figures show that tax receipts dropped from €4.17 billion at the end of February 2001 to €4.14 billion last month. On a positive note, the figures show that consumer spending was strong with VAT and excise duties performing strongly in the two months. VAT rose from €1.5 billion to €1.6 billion while excise duty was up from €550 million to €614 million. A spokesman for the Minister for Finance declined to comment on the figures last night. The Fine Gael finance spokesman, Mr Jim Mitchell, said 22 per cent growth in expenditure in the first two months was equal to 3.7 per cent growth in current expenditure for the full year. Corrective action or an immediate general election were the only options, he added.
Economists suggest the slow-down in income tax revenue is a cause for concern and that this, coupled with much higher Government spending, will push the Exchequer finances into the red at the end of the year.
Mr Austin Hughes, chief economist at IIB Bank, believes this will be the outcome by year end. "Income tax revenues are unlikely to grow strongly because of the ongoing economic uncertainty while Government spending is expanding rapidly. If this continues it would be realistic to expect a deficit of between €500 million and €1 billion by the end of 2001."
But Bank of Ireland chief economist, Dr Dan McLaughlin, gave a more upbeat assessment, suggesting February's deficit is likely to be a one-off with the Exchequer finances likely to return to a surplus again this month.
He believes the Government may have given away more in terms of tax benefits in its last Budget than the Department of Finance forecast which accounts for much of the slow-down in income taxes. Dr McLaughlin also suggests that certain timing factors, such as when the Government pays debt servicing charges, have influenced the February outturn and he is confident that income tax revenues will begin to accelerate as the year progresses.
