Tax shortfall to hit €26bn by year’s end

THE black hole in the nation’s finances will explode to more than€26 billion by year’s end due to a deeper than feared collapse in tax revenues, exchequer figures last night revealed.

Finance Department experts admitted the €1bn shortfall in tax returns already recorded would double to €2bn by Christmas as the devastated property market continues to drag down the rest of the economy.

Exchequer tallies to the end of September put the deficit at €20.2bn, €10.8bn more than this time last year. The increase is being partly blamed on €4bn being pumped into nationalised crisis bank Anglo Irish.

The only glimmer of hope in the figures was a small drop in the projected welfare spending on unemployment benefit as the live register has stabilised for the past two months at below 13% of the working population.

With the country needing to borrow €26bn on the currency markets to stay afloat in 2009, the latest receipts put even more pressure on the Government in the run-up to the December Budget.

Finance Minister Brian Lenihan has already indicated that cuts of between €3bn and €4bn would need to be imposed as any further imposition of taxes would endanger a recovery.

The worsening of the deficit comes as the Government seeks to slash public sector pay by around 5% – prompting the threat of a bitter wave of national strikes from civil service unions.

Mr Lenihan insisted the figures proved that his “stabilisation measures” were taking effect as he stressed the big fall in tax take reinforced the need for a significant reduction in Government spending in the December budget.

Finance Department estimates show that the state will take in just over €32bn for the whole of 2009 while the state will spend some €55bn on salaries and services.

VAT and income tax were the major under-performers, with the Finance Department embarrassed as its revised estimates released in the April emergency budget proved to be so off the mark at €2bn out.

This feeds into a total fall of more than €4.8bn over the year as a whole.

The scale of the crisis in the public finances is reinforced by the fact that the national debts stands at 12% of GDP – more than three times that allowed under the EU stability pact.

VAT was down by 21% on the year, income tax was down by 9.4%, stamp duty was down by 50% and capital gains tax was down by 68%. This meant that the tax take to the end of September stood at just €23.7bn, down more than 16% on this time last year.

Mr Lenihan said strong measures were needed to turn around state finances, but he said he expected to see growth return to the economy by the second half of next year.