Government shortfall less than feared as tax returns up 4.4% to hit €27.1bn

TAX returns for the 11 months to the end of November show a far healthier position than many had forecast.

The tax shortfall will be substantially less than the €1.5bn projected by some forecasters just a few months back. Figures issued by the Department of Finance yesterday show that tax returns to the end of November totalled €27.1 billion, 4.4% ahead of the €26bn that rolled into governments coffers at the end of November 2001. Month-on-month, however, the figures show that close to €4bn extra flowed into the coffers in November. Of that, €1.5bn was in extra income tax and €600m from Corporation Profit Tax. As a result, the Government moves from a deficit of more than €439m to a surplus of 1bn at the end of last month. These figures are a major shot in the arm for the finance minister, who insisted his end-of-year figures would not be that far off the mark.

At this point, the income tax take at €8.3bn is just 3% down at the end of November, having been out by 9.3% at the end of October.

Bank of Ireland chief economist Dan McLaughlin said the figures show the economy is doing better than analysts claimed. VAT at the end of November is up 12.9% at more than €8.5bn.

In the case of Corporation Profit Tax, the Government is still €400m off target going into the last month of the year, but again, that figure has shown significant improvement.

CPT at €4.5bn is still short of the target of €4.9bn for the year.

In the White Paper last week, the Government projected total tax receipts of €29.3bn against an initial target of €30.44m.

Based on yesterday's figures, the €1.1bn shortfall is likely to be significantly improved, given the strong inflow of funds to the Exchequer during Christmas. While the Budget outlook has improved for this year, the minister could end up borrowing up to €3bn to fund next year's Budget commitments. He could in theory borrow up to €4.5bn next year. That would push him to the limit under EU rules, leaving him with debts at 3% of GDP.

The minister starts with an opening borrowing requirement of €2bn on the basis of earlier published figures.

Chief economist Alan McQuaid said we can be certain of three things about the Budget: "The minister will borrow; he will cut corporation tax and he will raise taxes." The Government forecast a year-end deficit of €139 million trimmed back from an earlier prediction of a deficit of €750 million.

Friends First chief economist Jim Power, said they will now hit that figure.