Public finance deficit soars to €3.6bn

THE Government is likely to face its toughest budget in more than a decade as the exchequer deficit has soared to €3.6 billion and is set to worsen further by the end of the year.

Figures published yesterday showed exchequer returns continued to deteriorate last month, with the Government forced to borrow heavily to fund the running of the country.

Falling tax revenue left the Government with a huge €3.6bn deficit by the end of May and estimates suggest it could worsen to as much as €6.5bn by the end of the year.

But Fine Gael claimed the Government had only itself to blame, accusing the coalition of “sabotaging” the economy by turning a €2bn surplus in 2006 into such a huge deficit.

“This government has sabotaged Ireland’s capacity to handle tougher economic times through reckless financial management over several years,” said Fine Gael finance spokesman Richard Bruton.

“Over the last two years, the Government has increased its day-to-day spending by 65% more than the rate of growth of the economy, and made no effort to secure any real value for that money spent.

“It is bad management, not bad luck, that has led to this nosedive in the public finances.”

Analysts warned the latest returns suggest the slowdown in construction is beginning to affect the wider economy, which continues to slow significantly.

And that point was underscored by leading think-tank the Organisation for Economic Co-operation and Development (OECD), which warned the knock-on effects of the housing market downturn could be more severe than had previously been anticipated. By the end of May, the tax take for the first five months of 2008 was €1.2bn off target.

Total revenues amounted to €17.122bn, against the €18.3bn expected by the Government and 8% below January-May 2007.

The €1.2bn shortfall marks a sharp deterioration from April, when the undershoot on revenue intake was a more modest €700 million.

The biggest black holes were in VAT and capital gains tax (CGT), which are now running €591m and €360m below projections.

Stamp duty, at €806m, was €130m behind and highlighted the softness in housing.

Not all the figures were behind, however, with income tax receipts at a little less than €5bn in line with forecasts.

The Government originally set an overall exchequer deficit target for this year of €4.866bn, but a Reuters poll suggests we are looking at a deficit of €6.5bn, well up from its previous figure of €5.9bn.

In April, the Department of Finance said after the publication of the first quarter exchequer returns that it was not expecting to recover the shortfalls in CGT in particular.

Davy Stockbrokers warned last night that, by year’s end, the tax take could be out by €3bn while Goodbody’s put the shortfall at about €2bn.

Chief economist with Bloxham Stockbrokers Alan McQuaid said it was now very clear the new minister for finance, Brian Lenihan, would have the unenviable job of unveiling the most difficult budget in more than a decade.

Mr Bruton added that it was now evident the coalition’s Programme for Government “was in tatters” because the money was no longer there to fund it.


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