Exchequer reveals huge deficit

THE Exchequer deficit for the four months to the end of April reached €1.74 billion, close to the €1.8 billion target for the whole year.

The huge shortfall is symptomatic of the slow down in the economy, analysts said. It compares with a much lower figure of €112.7 million in the same period of 2002, according to Department of Finance figures issued last night.

Total Government spending rose to €10.61bn, up from €9.49bn in the first four months of last year. The real concern is that total tax revenues and other receipts fell to €8.9bn from €9.4bn over the same period last year. Chief economist of Friends First, Jim Power said the figures are not as bad as they first appear but are consistent with an economy that has slowed dramatically over the past 18 months.

It would be wrong to over-play the size of the deficit at this stage, he said. It must be borne in mind that in the first four moths of last year the Government’s coffers were boosted by an influx of €885m from the social insurance fund and other sources not available to the exchequer this year. Nonetheless, “the Minister for Finance will be hard pushed to make his €1.8bn deficit target for 2003, judging for the latest exchequer returns.”

However, Mr Power said that while the figures show an economy under severe pressure they “do not point to an economy heading for recession”.

Mr Power said he was confident of that but added that the Government had to watch its step in the months ahead if its Budget targets are not to be thrown seriously off course. The Celtic Tiger boom has levelled off and we have to wake up to that reality, he added.

Figures released yesterday showed the tax take continuing to fall well short of this year’s targets set in the Budget. Total tax receipts were €8.46bn, coming in below the budget target for the four months of €8.65bn. It also emerged from yesterday’s figures for the first four months of the year that spending was running 8% ahead of the same period last year at €9.16bn. That, however, is one of the plus factors in the latest figures that continue to highlight weakness in economic growth since the start of the year.

The Budget projection was for spending to be at €9.7bn at this stage of the year. Most of the major tax areas were down with income tax 4% below target at €2.54bn.

Customs, excise, capital and corporation tax also came in lower than projected. Exceptions were receipts from VAT - marginally ahead of target at €3.27bn - and stamp duties, which are nearly 30% higher than expected as the housing market continues to be strong.

Without VAT and stamp duties all driven by the high demand still in the housing market the figures would have been worse. With that sector expected to soften considerably as the year evolves Mr Power said the Government will face higher borrowing than the €1.8bn implied in the Budget.