Poor tax returns threaten further cuts

THE Government may be forced into another round of cutbacks this year as tax returns threaten to fall well below expectations.

Economists warned last night that Minister for Finance Charlie McCreevy could face a tax shortfall of €1 billion by the end of the year as it was announced Government finances are already €1.2bn in the red.

While the Government said the exchequer returns proved they were successfully managing the economy and keeping spending under control, opposition parties said the figures proved Mr McCreevy was economically incompetent and public services continued to be squeezed.

Following the election last year, the Government had to introduce a range of cutbacks, described officially as budgetary adjustments, to compensate for the overspending in the run-up to polling day.

This year the Government insists spending is being tightly managed, but tax revenue is weak, with income tax in particular down 10%, leaving the minister with the choice of either cutting back again or borrowing even more.

In the budget, Mr McCreevy planned to borrow €1.9bn to balance the books, but Davy Stockbroker analysts Robbie Kelleher and Rossa White predicted tax revenues may come in well below target:

"The growth in overall tax receipts is now more than two percentage points behind expectations and implies a shortfall of between €500 million and €1bn for the year as a whole," they said.

Last night, a spokesman for Mr McCreevy said it was too early in the year to draw conclusions on the exchequer position at the end of the year.

Spending by all government departments is still on target, as €680m earmarked for expenditure has not been spent yet.

"That is an indication of the tight management of public expenditure," the spokesman said.

However, Fine Gael finance spokesman Richard Bruton said the figures were a hangover from last year's election and some worrying underlying trends were emerging.

"Last year's €55m surplus was a hollow surplus, based on 'funny money', like the €635m transferred from the Social Insurance Fund. The absence of similar transfers this year gives a truer reflection of the state of the finances," he said.

Labour finance spokeswoman Joan Burton said the exchequer figures told a different story from the tale spun by the Taoiseach and the Tánaiste this week in their progress report on the Government's first year in office, where they lauded their sound management of the public finances.

"Minister McCreevy's reckless mismanagement of Ireland's economic affairs overheated the economy, and is now resulting in high inflation and lost competitiveness," she said.