Weakness in excise duties and income tax is continuing to put pressure on the Exchequer finances as preparations intensify for December's budget, writes Cliff Taylor, Economics Editor
However, some improvement in tax trends has led to forecasts that the Department of Finance's prediction of a €500 million tax shortfall for the year may prove overly pessimistic.
Tax trends over the balance of the year - and particularly next month when the self-employed returns are made - will now have a key bearing on the forecasts underlying the 2004 budget.
While there is some signs of improvement in taxes, yesterday's Central Bank prediction of Gross National Product growth of just 2.75 per cent next year represents the kind of gradual upturn which would still leave the Exchequer finances under pressure. The Bank also issued its strongest warning to date about the risks facing the housing market.
The third-quarter Exchequer figures, published yesterday, showed a deficit of spending over revenue of just over €1 billion, compared to a surplus of €594 million for the same period last year. Overall spending is broadly on target, the Department of Finance says, predicting that a shortfall in capital investment spending - running 11 per cent below 2002 levels for far - will be made up by the end of December. Current spending growth is 8 per cent, meanwhile, slightly under the 8.6 per cent target.
Taxes were some €200 million behind target for the first nine months, mainly due to weakness in excise duties, income tax and corporation tax.
However, there has been some pick-up in income tax, which is now running slightly ahead of last year's levels, boosted by tax payments from the public pay benchmarking awards. Stamp duty remains well above target due to the housing boom.
Overall the Department is sticking to its prediction that there could be a tax shortfall of up to €500 million for the year.
However, last night forecasters said this could prove pessimistic. AIB Capital Markets believes the tax deficit could be held to €300 million and that savings on national debt and EU payments could keep borrowing very close to the €1.89 billion budget target.
An outturn close to target would go some way to easing the pressure in framing the 2004 budget. An analysis by Davy stockbrokers of the figures said: "Next December's budget may not now be the draconian affair that had been earlier feared."
However, the modest outlook for the economy will still mean the Department is likely to take a conservative view of tax revenue trends next year.
This will mean pressure to hold down current spending growth in the estimates for 2004, due for publication next month, and probably the need to raise some revenue from taxes on budget day.