IT IS NOW a "very close" call whether the Government can collect as much tax revenue in 2008 as in 2007, a spokesman for the Department of Finance conceded yesterday evening following the publication of the exchequer's financial statement for April.
The statement shows that the Government collected €13.26 billion in taxes during the first four months of 2008, €927 million or 6.5 per cent less than the €14,191 million that flowed into the exchequer in the corresponding period of 2007.
In the 2008 Budget, the Government targeted a €1.585 billion or 3.3 per cent increase in tax revenues during 2008. However, tax receipts so far this year continue to fall below official expectations. The public finances continued to deteriorate during April and tax revenues in the first four months of the year have fallen €736 million, or 5.3 per cent, short of official targets.
The shortfall in overall tax revenues has been triggered principally by the disappointing performance of two taxes. Receipts from capital gains tax fell €334 million or 36 per cent short of expectations in the first four months of the year, reflecting the weakness in housing markets and falling asset prices.
Value added tax - the exchequer's largest single source of income - has brought in €277 million or 5 per cent less than expected over the same period. This shortfall indicates that the slowdown in the building and construction is spilling over into the sphere of consumer spending.
Day-to-day Government spending has broadly adhered to budgets during the first four months of 2008, with the notable exception of the Health Service Executive (HSE). The HSE has overspent its budget by a gross €95 million in the first four months of the year. This overspend was reduced to a net €80 million by a clawback of €15 million from the nursing homes refund scheme.
However, large additions to capital spending under the National Development Plan combined with the steep shortfall in total tax revenues have caused the exchequer to incur an overall deficit of €3.74 billion in the four months ending April. This is almost six times the size of the exchequer deficit of €638 million reported in the corresponding period of 2007.
The Government set an exchequer deficit target of €4.86 billion in Budget 2008. While only one-third of the year has elapsed, more than three-quarters of this budgeted deficit has already been incurred.
The attainment of the Government's tax revenue and deficit targets this year is made considerably more difficult by the economy's declining health. The number of redundancies reported in the first four months of 2008 increased to 11,118 from 8,733 in the same period of 2007. More than half of these redundancies were reported in manufacturing and construction.
Live Register unemployment, on a seasonally adjusted basis, declined by 200 to 199,700 in April, having risen by 12,000 during March. The unemployment rate remained unchanged from March at 5.5 per cent.
However, the State training agency Fás points out that when the effect of an early Easter on the Live Register total is discounted, "the latest figures point to an underlying increase of 5,000 in the month of April. More generally, the numbers signing on have increased by 41,000 in the last 12 months with the majority of this increase - 28,100 - coming since the start of this year".
Ibec senior economist Fergal O'Brien said the Live Register figures could be skewed somewhat by the fact that some immigrants who have been out of work for a few months returned home or moved elsewhere in the EU.
"Unfortunately, the apparent relatively benign news emerging from the stabilisation of the Live Register in April has been overshadowed by the surge in redundancies last month," Mr O'Brien said.
"Overall, the labour market is much weaker than it has been for some time and there is a significant challenge for the social partners to both help stem the rise in redundancies and assist those who have lost jobs to find alternative employment."