THE EXCHEQUER deficit deteriorated by €11.9 billion in 2009, new figures from the Department of Finance show. An unprecedented €7.7 billion decline – or 19 per cent drop – in tax revenue and a €4 billion payment to Anglo Irish Bank were the main reasons for Ireland’s deepening deficit.

The exchequer deficit stood at €24.6 billion at the end of 2009, compared to a deficit of €12.7 billion at the end of 2008.

A year-on-year cut of almost €2.2 billion in net expenditure was more than cancelled out by the tax declines, the Anglo payment, a €1 billion increase in the interest payments on the national debt and a €1.3 billion higher payment to the National Pensions Reserve Fund.

Tax revenues arrived at €33 billion in 2009, which took the annual tax haul back to levels last seen in 2003. The tax receipts for the year were down from the €40.7 billion collected in 2008 and also fell short of the €34.4 billion target set by the Government in April 2009, at the time of the supplementary budget.

Better-than-expected capital gains tax payments in December, as well as higher than anticipated returns from corporation tax and excise duties over the year as a whole, meant that tax revenues in 2009 came in €473 million higher than was forecast in budget 2010.

However, the two largest categories of tax – income tax and VAT – remained weak. As the labour force contracted, income tax receipts arrived at €11.8 billion last year, more than 5 per cent or €640 million behind target and down 10 per cent or €1.3 billion on the previous year. VAT, a key indicator of consumer confidence, yielded receipts of €10.6 billion in 2009, some 6.6 per cent or €750 million behind the April targets. The VAT haul was down 20 per cent, or €2.7 billion, on 2008.

Department of Finance official Michael McGrath said the department would not be changing its budget day tax forecasts, despite the “slight improvement” in revenues in December. The Government said last month that it expects to receive €31.9 billion in tax receipts during 2010.

As a result of the better-than- anticipated tax revenues in December, the general government deficit (GGD) for 2009 would now be closer to 11.3 or 11.4 per cent of gross domestic product (GDP), rather than the 11.75 per cent forecast by the department at the budget. The GGD for 2010 is expected to be 11.6 per cent of GDP.

Debt servicing costs were €690 million lower last year than had been forecast in the supplementary budget. But the cost of paying interest on the national debt still increased from €1.5 billion in 2008 to €2.5 billion in 2009.