THE 2008 Budget is already drifting off course after just two months of the year. Tax revenues collected during January and February were €684 million, or 8.3 per cent lower than in the first two months of 2007, according to Exchequer Returns published yesterday by the Department of Finance. Paul Tansey, Economics Editor, reports
The decline in tax receipts, particularly pronounced during February, indicates that the economic slowdown is spreading gradually from the housing sector to other parts of the economy.
The tax gathered by Government so far this year is €516 million, or 6.4 per cent less than the Department of Finance had anticipated. For the year as a whole, the 2008 Budget projected that the tax take would increase by 3.3 per cent. Relative to the department's projections, tax shortfalls to date in 2008 have been particularly acute in the areas of capital gains tax, value-added tax (VAT) and corporation tax.
Despite the divergence from Budget targets, no remedial action is contemplated in the short term. "We will continue to monitor the monthly trends before considering any action. We're not going to change course," a spokesman for the department said last night.
Receipts from VAT during January and February were 2.3 per cent lower than the VAT revenues collected in the first two months of 2007. VAT receipts closely mirror trends in consumer spending, the largest component of domestic demand.
More worrying, from an economic perspective, the VAT revenues collected in the first two months of this year were 7.3 per cent below expectations in the department. As a result, the department's forecast that the volume of consumer purchases would increase by 3.8 per cent this year is now under threat.
The steep declines in receipts from stamp duties and capital gains tax this year indicate that activity in the building and construction sector has stalled. In the first two months of 2008, the yield from stamp duties was €297 million, or 44 per cent lower than in January and February 2007. Receipts from capital gains tax during January and February were €331 million or 39 per cent below the amounts collected in the first two months of 2007.
While tax receipts are falling, Government spending is rising sharply. Day-to-day spending by Government departments was 24 per cent higher in the first two months of this year compared to spending levels in January and February 2007.
A spokesman for the Department of Finance last night attributed the steep spending increase largely to timing issues. He reaffirmed the Government's commitment to contain the growth in current public spending to the 8.2 per cent increase enshrined in this year's Budget.
Nonetheless, with taxes falling and spending soaring, the exchequer returned a deficit of €125 million for the first two months of 2008.