Tax Revenue Plunge Sinks Irish Government Further Into The Red

by Jason Gorringe, Tax-News.com, London

06 January 2009

Irish Finance Minister, Brian Lenihan has attributed a EUR12.7bn budget deficit for 2008 to the worsening economic climate, which has led to reduced tax receipts whilst unemployment-related government expenditure has sky-rocketed.

On January 5, the Irish government announced that tax revenue was EUR8.1bn below target in 2008 whilst expenditure was EUR351m or 0.7% above earlier projections.

Noting the end-year Exchequer Returns Lenihan said:

“The Exchequer Returns published today are in line with the projections outlined at the start of December. These figures reflect the fact that, both domestically and internationally, economic conditions are poor."

“Tax Revenues at EUR40.8bn were EUR8.1bn below profile. The further deterioration in tax receipts since budget day reflects the worsening economic circumstances over the last number of months."

“Expenditure pressures emerged during 2008 mainly due to increased unemployment-related spending. However, total expenditure, excluding social welfare spending, was close to target, reflecting the impact of the government’s mid-year action to address the emerging spending pressures."

“There was an Exchequer Borrowing Requirement of EUR12.7bn in 2008. This is substantially higher than we had planned for and as a result the national debt rose by this magnitude. At end-2008 the General Government Debt to GDP ratio was just over 41%, up from just under 25% at end 2007. Net of the assets of the National Pension Reserve Fund and the significant cash balances held by the NTMA, the end-2008 figure would be approximately 20% of GDP."

“Overall, these Exchequer Returns, combined with economic data published since the budget, confirm that the outlook for next year has deteriorated. I recently indicated that economic activity in 2009 will contract by significantly more than generally anticipated at budget time last October. Contraction in economic activity in 2009 of somewhere in the region of 4% is now likely. When the government meets later this week it will consider the revised economic and fiscal assessment from the Department of Finance. I plan to publish these revised forecasts shortly thereafter."

“Borrowing for day-to-day expenditure is not sustainable. Our first priority is to stabilise the public finances and to restore sustainability to them."

“There is no doubt that this will be very challenging. With proper handling, however, we can position ourselves so as to benefit from the global economy recovery when it happens. This requires decisive and sustained action over time and the government is committed to take the necessary and proportionate actions in that context.”

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