Irish Manufacturing Decline Puts More Pressure On Tax Revenues

by Amanda Banks, Tax-News.com, London

04 November 2008

More economic gloom emerged for the Irish government this week after it was reported that the Irish manufacturing industry declined sharply in October as output, new orders, employment and purchasing activity all fell during the month, putting the Irish government's fragile tax revenues under further pressure.

The NCB Purchasing Managers’ Index (PMI), a measure of the country's manufacturing activity, fell to 39.7 in October from 43.7 in September. Any figure below 50 represents a contraction in the manufacturing sector and October's figure is the lowest since the survey started in May 1998. It is also the 11th consecutive month the index has revealed a figure below 50.

Analysts had anticipated a contraction in October, but the extent of the decline has caught many by surprise. It also spells more bad news for the government, which has been forced into announcing deep budget cuts and tax increases to counter a sharp decline in revenues, particularly capital gains tax and value-added tax receipts. The manufacturing data suggests that corporate tax receipts could also decline in the months ahead after holding up well this year amid the economic downturn, while income tax revenues will also come under more pressure as unemployment rises.

Irish Finance Minister Brian Lenihan confirmed in last month's budget that there would be a shortfall of EUR3bn in tax revenues this year. He also announced that government expenditure was running 11% ahead of last year, forcing him to impose a 1% levy on all incomes, rising to 2% on incomes over EUR100,000, and a half-point rise in VAT.

Recommended