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From Accountingnet.ie Recession
July was a disappointing month in terms of tax revenue, with receipts some €387 million behind the Government’s monthly profile published as recently as the end of April. This poor monthly performance pulled cumulative revenues for the year to July €574 million, or 3%, below plan - an acceleration on the 1.2% shortfall in June.
As was the case in the month of July, the predominant source of weakness in tax revenue in the year so far has been VAT receipts, signalling pronounced weakness in consumer spending. This category of taxes accounted for some €448 million, or almost 80%, of the €574 million shortfall in the year to July. The latest figures also point to ongoing weakness in the labour and housing markets, with income taxes €185 behind plan and Stamps and CGT taxes down a combined €126 million. Resilience in excise taxes, which were €108 million ahead of plan, provided a partial offset. However, the overall picture remains one of notable deterioration in tax revenues in July.
As projected in the April budget, 2009 tax revenue is forecast at €34.4 billion, which would represent a fall of 16% on the tax intake in 2008. In the year to July, tax receipts fell by 17.6% relative to the same period in 2008. While this was an improvement on the sharp declines of 24% in some earlier months of the year, it represented a disimprovement on the 17.3% rate of decline in June. Given that the rate of decline had eased for the two months prior to July, the latest tax revenue figures call the achievability of the Government’s full-year target somewhat into question.
…capital spending is also running well behind plan…
Overall voted government spending continues to run behind plan, with total expenditure some €250 million behind profile for the first seven months of the year. In fact, this is less of a shortfall than recorded last month when the deviation was of the order of €530 million, so some modest loosening of the purse strings was evident in July. Additional spending (relative to plan at least) to the tune of about €235 million by the Department of Health and Children accounted for the smaller shortfall last month.
The extra health spending was mainly on the current side, to leave that area running ever so slightly ahead of plan on an aggregate basis. In total, current spending in the year to July was €23.9bn, up some 2.6% on the same period in 2008.
On the capital side, there remains a concerning shortfall relative to the Government’s published profile. By this stage, if the plan was on track, the total capital spend would have amounted to €3.74bn. Instead, the actual spend amounts to €3.46bn, leaving a negative variance of €275 million. Two brief points are worth making here. First, capital spending can often come in large and uneven chunks, so the deviation from plan may represent timing considerations. Second, the total shortfall has narrowed over the last month, with the €275 million estimate a bit lower that the €298 million posted in June. Nonetheless, while the gap relative to plan narrowed a bit last month, it remains a concern to us that the capital spending programme is running so far behind schedule (7.4% behind plan and 11.4% down on last year) as it suggests that this important area is perhaps being targeted as an easy means of achieving budgetary savings.
… full-year budgetary targets look ever-more challenging
Overall, with seven months of the year now behind us, it is clear that both spending and tax revenues are running behind the Government’s targets. Weakness in tax revenues no doubt reflects ongoing weakness in the economy, while the lower spending profile suggests that the government is actively keeping a very firm grip on spending, especially of the discretionary capital variety.
While voted spending is running some €250 million lower than planned, the revenue shortfall is even greater at €574 million. Thus, the net position is some €325 million worse than planned. Last month, the net position was actually €340 million better than expected, with the disappointing tax receipts last month a major source of the swing here. The overall conclusion is that the full-year budgetary targets, while not unachievable, are looking ever-more challenging.
Simon Barry
Senior Economist, Ulster Bank
Tel: 00 353 1 643 1553
or
Lynsey Clemenger
Economist, Ulster Bank
Tel: 00 353 1 6431565
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