The Government could be facing a shortfall of up to €1 billion in taxes this year as slower economic growth has dramatically reduced tax revenues.
At the end of August, the Department of Finance reported that tax revenues were well short of the targets it had set in the last Budget and signalled a shortfall of around €500 million. Economists now believe that figure is modest and are forecasting that the tax revenues will be down by as much as €1 billion by the end of this year.
The increase in tax receipts in 2002 was forecast at Budget time to be 8.6 per cent. At the end of August, Exchequer figures showed that tax revenues had risen by just 1.1 per cent.
The single biggest disappointment for the Government has been income tax.
On Budget day, the Department of Finance had forecast that income tax would expand by 7.2 per cent in 2002, but by the end of August income tax receipts were 11.2 per cent below the sum yielded in the same period last year.
This much weaker trend reflects lower tax rates but also a marked decline in bonus and overtime payments, as all sectors, and particularly high-tech industries, tightened their belts.
Corporation tax has also underperformed, although some of the downturn is due to changes in the timing of tax payments falling due to the Revenue Commissioners and could improve in the coming months. It too was forecast to grow by 7.2 per cent this year.
At the end of August, it was up 6.2 per cent on the same period last year.
Excise duties and VAT have held up well, suggesting consumers had not curbed their spending for most of this year.
The Government will be concerned that a drop in consumer confidence will impact on these taxes in the months ahead as people react to a time of greater economic uncertainty.