Tax revenues fell short of budgetary expectations by €1.826 billion during 2007, according to the exchequer returns for the year published yesterday by the Department of Finance.

After a particularly weak run of tax receipts during the peak tax-gathering month of November, no Christmas revenue bounce materialised during December. As a result, the projected shortfall in annual tax revenues widened from €1.75 billion at the end of November to €1.826 billion at the year's end. This narrows the national tax base by a further €76 million entering 2008.

The tax shortfall during 2007 was caused principally by the poor performance of property-related taxes. Activity in the housing market weakened steadily as the year progressed.

As a result, almost €1 billion less than expected was collected in stamp duties and capital gains taxes during the year. Together, these two taxes were responsible for more than half of the overall tax shortfall during 2007.

As a result of undershooting tax receipts, and despite savings generated in other areas, the exchequer's deficit for the year was over €1 billion more than it had anticipated in the 2007 budget. By the end of 2007, the exchequer deficit had swelled to €1.619 billion from a 2007 budget target of €546 million.

Current public spending during 2007 was broadly in line with budgetary expectations, but still rose 12.3 per cent on the level of day-to-day Government spending in 2006.

However, significant overspends were recorded in two areas. Spending by the Health Service Executive (HSE), amounted to almost €11 billion in 2007, which accounted for almost 30 per cent of current Government spending last year.

While overall HSE spending during 2007 was broadly in line with revised budgetary estimates, the aggregate total conceals two disparate underlying trends. HSE spending on the provision of front-line services was some €235 million in excess of revised budgetary estimates for 2007. This overshoot was offset by savings of some €216 million on the nursing home repayments scheme and miscellaneous other savings.

Expenditure in justice exceeded budgetary estimates by some €72 million, primarily due to Garda overtime, prison security and buildings and departmental administration.

The combined effects of rapid public expenditure growth and undershooting tax receipts have caused a marked turnaround in the exchequer's financial position between 2006 and 2007. The 2007 exchequer deficit of €1.619 billion stands in stark contrast to the surplus of €2.265 billion recorded in 2006.

The deterioration in the exchequer's financial position is set to continue this year, with the 2008 Budget projecting an exchequer deficit of €4.866 billion for the year ahead.

Fine Gael finance spokesman Richard Bruton said the turnaround from 2006 represented "the most rapid deterioration in public finances that has ever occurred."