Fears lack of jobs stimulus could scupper recovery
Yesterday’s exchequer returns showed the Government had an overall budget deficit of €13.349bn in the first 11 months of 2011, €8.7bn less than the deficit of €22bn in the same period in 2009.
They also confirmed tax receipts for the year now stand at €29.5bn, €470m or 1.6% ahead of target.
Alan McQuaid, chief economist with Bloxhams, said the latest figures were very encouraging and should reassure the Government that it was on the right path to sort out the country’s public finances. He said they should also send a signal to the opposition parties not to take any soft options as regards fiscal austerity.
However, on the fall in the budget deficit, he pointed out that €8.7bn drop was largely attributable to a €3bn payment to the National Pensions Reserve Fund and a €4bn payment to Anglo Irish Bank which were made in 2009 and not repeated in 2010.
On the €29.5bn in tax revenue generated, he said that it was down 4.1% from the figure of €30.759bn in January-November 2009. At end-October, tax revenue was 5.4% lower than in the same period last year, while at end-September the year-on-year rate of decrease was 6.5%.
“In last December’s Budget, the Government projected tax revenue to amount to €31.050m in 2010, 6.0% lower than the 2009 out-turn,” said Mr McQuaid. “November is the most important month of the year for tax revenues, with 15% of the annual target due for collection. So following these latest figures it looks like overall tax receipts in 2010 will be higher than the figure officially projected in last December’s Budget. Indeed, the Government is now expecting surplus receipts of €450m.”
Income Tax was €356m lower than target as against a shortfall of €369m at end-October. VAT was €74m higher compared with surplus receipts of €38m at the end of the previous month and Corporation Tax was €589m higher as against excess receipts of €473m at end of October.
Alan McQuaid said the corporation tax receipts were particularly strong which was very positive and he said it was a clear justification for the Government not to cede any ground on the low 12.5% rate.
Peter Vale, tax partner with Grant Thornton said the large corporation tax surplus was significant.
“A substantial portion of the November corporation tax receipts is advance payments by companies in respect of their expected 2010 profits,” he said. “The figures suggest that companies are performing far better in 2010 than expected.”
Mr McQuaid pointed out that the focus will now shift to next Tuesday’s Budget.
“A €6bn fiscal adjustment in the forthcoming budget without some sort of stimulus measures to boost activity could easily crush any prospect of a pick-up in domestic demand and send the Irish economy backwards rather than forwards in 2011,” he said. “That said, the export side should be strong enough to see real GDP growth of just under 1.5% next year as against an estimated contraction of 0.4% in 2010.”
