Tax shortfall of €3.5bn due to downturn, says finance chief

THE €3.5 billion tax shortfall in the past two years was blamed on the economic downturn by Charlie McCreevy’s top civil servant yesterday.

Department of Finance secretary general Tom Considine said the lower than expected tax revenues were due to the decline in economic growth, September 11 and the foot-and- mouth disease crisis rather than a miscalculation by his officials.

At a Public Accounts Committee hearing, Mr Considine said in 2001, only €28bn in tax was collected despite a prediction in the budget that €30.5bn would be raised. In 2002, tax receipts fell short at €29.3bn when €30.3bn was to be accumulated.

But Mr Considine argued that tax forecasting was not an exact science and was subject to shifts in economic growth, which were difficult to predict.

The largest contributor to the shortfall in 2002 was low corporation tax receipts, Mr Considine said.

"Corporate profits are very difficult to project when there are significant economic changes in the relevant period. The base year for the bulk of 2002 corporation tax receipts was 2001 and therefore the profits for that year reflect the impact of a rapidly slowing economy, September 11 and the foot-and-mouth restrictions.

"Ireland is not unusual in experiencing a significant shortfall in corporation tax in 2002. Other examples include Germany and Britain," he said.

But a number of committee members said the inaccuracy of the forecasts were damaging to public confidence in the Government and the taxation system.

Public Accounts Committee chairman John Perry said the forecasting system could be described as inept as it was out by €50 million a week.

"What confidence can the public have in this year's forecast in the budget, bearing in mind the inaccuracies in the past?" he said.

Socialist Party TD Joe Higgins said tax revenues were of paramount importance to working people as Government services were predicated on tax incomes.

"The methodology employed might have had a level of accuracy in Celtic Tiger times but is now blown to bits at the first sign of crisis," Mr Higgins said.

Fianna Fáil TD John McGuinness wanted to know what steps were being taken to ensure the system would be more accurate in future.

"People will feel there is something seriously wrong with how we crunch our numbers," he said.