New figures showing the slowdown in the property market is hitting Government finances harder than expected make a tough budget in December all but certain.
Exchequer returns released yesterday show substantial shortfalls in the taxes generated from the property and construction sectors during the first nine months of the year.
The figures showed tax receipts running at €490 million below forecast and forced the Minister for Finance, Brian Cowen, to concede for the first time that a shortfall in Government revenues of up to €1 billion for the year is likely - almost double what had been expected.
As a result the Government will have less money to spend on budget day and have to choose between cutting back on spending on infrastructure or announcing only modest increases in welfare and tax bands, according to Pat McArdle, chief economist of Ulster Bank.
Mr Cowen said in a statement that the figures "underline the need to continue to implement prudent, sensible fiscal policies while at the same time giving spending priority to those areas which enhance our productive potential".
The Opposition parties attacked Mr Cowen for not taking corrective action.
Fine Gael finance spokesman Richard Bruton said the figures showed the Government's spending was continuing to grow at an unsustainable pace, far in excess of the growth rate in the economy.
Labour's finance spokeswoman, Joan Burton, said the Exchequer returns confirmed that the optimistic forecasts made in last December's Budget were an illusion and would not be sustained by the end of 2007.
Overall tax revenue was 2 per cent below expectations, including significant shortfalls in the amount collected in taxes associated with property and building - stamp duty, capital gains tax and VAT.
Stamp duty receipts were well below expectations, reflecting the significant downturn in the property market; they came in at €401 million (almost 14 per cent) lower than expected.
Excise duty was €225 million lower than expected as the Department of Finance had overestimated the number of new cars that would be bought this year with SSIA money.
Government spending was €274 million ahead of target.
The department said the underlying overrun on health spending was €270 million, although the Health Service Executive (HSE) has benefited from €170 million yet to be reclaimed in the nursing home repayments scheme.
Department of Finance officials said they expected the HSE to manage within the budget allocated for 2007.
Income and corporation tax receipts were ahead of expectation, showing that the downturn appears to be isolated to the property market.
Austin Hughes, chief economist with IIB, said the figures illustrated that the slowdown in the property market "showed no signs of broadening out into the general economy".
However, Mr Hughes said that Mr Cowen would "probably be getting noises from the department to be prudent in his budget".
Mr Bruton said "The figures reveal a worrying trend. . . While the overall tax take for the first nine months of the year is 5.7 per cent higher than in the same period of 2006, the Government's current spending is almost 18 per cent higher."
Mr Bruton said that if the pattern continued, the end-of-year deficit would be substantially worse than forecast.
Ms Burton said: "Already tax receipts appear to be half a billion euro lower than anticipated and the accumulated deficit for the year to date is in excess of €3 billion which is 20 times the deficit for the same nine months in 2006.
"Instead of a year-end surplus, the State will face a significant budget deficit that must worry everyone concerned with Ireland's financial health," the Labour spokeswoman said.