Tax shortfall of €1.45bn leaves Exchequer €5.6bn in the red

The Government’s tax take for the first half of the year was €1.45bn behind schedule, the Department of Finance revealed today.

The Government’s tax take for the first half of the year was €1.45bn behind schedule, the Department of Finance revealed today.

Confirming fears the economy was sliding into a possible recession, the Exchequer figures were 7% below the Budget plan, leaving the Exchequer €5.6bn in the red.

Finance Minister Brian Lenihan said the Government was expecting a tax shortfall of €3bn for the year.

“The downside risks identified in the Budget have materialised – the extended credit crunch, all-time high oil prices and adverse exchange rate movement,” he said.

Unveiling the half-year figures, grim-faced Department of Finance officials said falling tax receipts and the housing market had dragged down the economy by about 4%.

In addition, an unemployment rate of 210,000 by the end of December is now expected.

The number of houses built in 2008 is expected to plummet from 78,000 to 43,000 and that will drop by a further 10,000 again in 2009, officials said.

However Mr Lenihan still expects the economy to grow by 2% this year.

“Continued pursuit of sensible policies will help ensure that the economy is well placed to return to trend growth of about 4% once the current difficult economic conditions pass.”

The Government said it will use today’s figures to hammer out a package of measures at next Tuesday’s Cabinet meeting which will be later unveiled in the Dáil.

Senior Department of Finance senior official Michael McGrath refused to speculate on where an extra €5bn will be found to fund current public spending targets.

“That is really outside our remit today,” he told a news briefing.

But he added: “When you take out the very negative drag factor from housing, the rest of the economy is doing okay, given the international economic climate.”

Official Ann Nolan said the growing dole queues, which reached 193,000 at the end of May, could cost an extra €500m this year.

She explained: “Pressure will come from the Live Register. Every 1,000 people that sign on the Register will cost about €11m over a year.”

The officials said they expected about 13,000 jobs will be created this year, compared to Budget forecasts of 24,000.

Live Register figures for June and the first six months of the year will be published on Friday.

Fine Gael accused the Government of hiding behind international economic conditions for its incompetence on managing the state’s finances.

Deputy leader Richard Bruton also warned against cutbacks that could hurt vulnerable sectors like people with disabilities.

Labour deputy leader Joan Burton called on Government departments to ban the use of outside consultants in a bid to cut costs.

She added: “They could lead from the top and say they’re not taking their pay increases.”

Earlier in the Dáil, the Taoiseach said the economic situation would mean the Government will have to cut its cloth to measure but there was no easy or painless way forward.

Labour Leader Eamon Gilmore accused Mr Cowen of bluster and of sleepwalking the country into a recession.

Fine Gael leader Enda Kenny claimed today’s figures would probably be the worst the economy has ever seen.

“If you don’t accept any responsibility for the situation we find ourselves in now, how can you ask, with any credibility, people to believe you can steer us out of this mess,” he told the Dáil.

Mr Cowen replied that it was inaccurate to suggest that the economy had suddenly become bad overnight.

The main political parties are to hold a major debate on the economy next week before adjourning for the summer recess.

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