A tough budget could be in prospect for December as new figures show that weakness in the property market is feeding through into the public finances.
Exchequer returns released by the Department of Finance yesterday reveal a €268 million shortfall in stamp duty receipts since the start of the year.
Minister for Finance Brian Cowen has told Cabinet colleagues that the rise in Government spending next year will be sharply below that allowed this year as a result of the disappointing trend in the Government's finances.
Talks between Mr Cowen and other Ministers on the shape of next year's State spending will begin shortly, though officials from all departments are already in preparations for the annual process of setting departmental budgets.
The Minister has indicated that the increase in Government spending next year will be half the 13 per cent planned for this year.
Despite the disappointing performance of property-related taxes, the department last night insisted exchequer returns for the first eight months of the year were good.
Receipts from capital gains tax - another property-related tax - are €104 million behind expectations for this stage, while VAT receipts are also running below the department's forecasts.
The numbers show that the property slowdown is starting to weigh on the exchequer after years of booming property tax receipts.
Taxes as a whole are €273 million behind expectations for this stage, with some economists now predicting a tax shortfall of €1 billion for the year as a whole.
A gap of this magnitude would almost certainly force belt-tightening at budget time, in contrast to last year's pre-election position of relative comfort.
The overall picture for the public finances is less gloomy, however, with the latest figures showing resilience in income tax on the back of a solid jobs market.
Employment numbers for the second three months of the year, released by the Central Statistics Office yesterday, showed annual growth of 3.9 per cent, despite declines in construction.
Income tax receipts increased by 13 per cent year on year in the eight months to the end of August, according to the returns, and are €131 million ahead of forecasts for this stage of the year.
Corporation tax also provided a bright spot in the numbers, coming in €121 million above expectations.
The exchequer returns as a whole show that the public finances were in deficit by almost €2.9 billion at the end of August, compared to a surplus of €203 million at the same point in 2006. The Department of Finance has projected an end of year deficit of €546 million, but some economists now expect this to expand to €1.5 billion.
"Even if income tax and corporation tax continue to hold up, there is now a prospect that revenue will undershoot by up to a billion this year," said Pat McArdle, chief economist with Ulster Bank.
Economists at Davy pointed out that stamp duty receipts were 22 per cent lower in August than in the same month of 2006. They noted that this was the biggest annual drop in more than five years and suggested that the worst had yet to come for housing-related taxes.
The August data also show that the Government has spent €567 million more than planned for the first eight months, with the overshoot coming mostly on capital projects such as roads, thus helping to compensate for slowing spending on housing construction.
Fine Gael finance spokesman Richard Bruton said: "These spending trends are simply not sustainable in an environment of slowing growth in the economy and in tax receipts. Clearly if this pattern continues, the end-of-year deficit will be substantially worse than that forecast by the Government." Labour Party finance spokeswoman Joan Burton said the Government's spending decisions over the last three years were driven by the need to win this year's election, and those decisions would now come back to haunt the public.