Day-to-day Government spending is now growing at close to double the Budget-day target, according to the latest figures.
The continued upward spiral in spending - coupled with a worsening slump in income tax receipts - overshadowed a small improvement in the Exchequer finances contained in the end-May Exchequer statement. ...
The Government accounts were in surplus to the tune of €56 million at the end of May, according to the statement released yesterday. This represents an improvement on the deficit of €113 million recorded in the four months to the end of April.
However, income tax receipts - the Government's largest single source of income - were down almost 15 per cent on the same period last year. Total revenue during the period was €12.3 billion, just 1 per cent less than last year, but still well behind the 8.6 per cent increase forecast at Budget time. The gap has narrowed from April, when revenues were running 2 per cent behind last year.
The fall off in income tax was compensated for by significant increases in revenue from areas such as excise duties and VAT, which are running ahead of the forecasts made at the time of the Budget.
The figures released yesterday show that spending continues to race ahead. Overall, Government spending in the five months to May is 22 per cent ahead of last year. This represents a deterioration on the April position when spending was running 20 per cent ahead.
Day-to-day spending by Government parties - voted expenditure - is now 27 per cent ahead of last year and close to double the Government target of 14 per cent. The unchecked growth in spending combined with the shortfall in revenue makes it all but inevitable that the Government will end the year in deficit for the first time in more than five years.
The huge shortfall in income tax receipts defies explanation and is at odds with other data indicating that both employment and wages grew during the first five months of the year. The better-than-expected VAT and excise revenues also indicate that the economy is growing, as shown by other measures.
A number of technical explanations have been put forward to explain the shortfall. They include the impact of smaller bonuses and less overtime as companies cut back. This would reduce income tax, while not affecting employment or wage rates. The Minister for Finance, Mr McCreevy, has also pointed to the impact of bringing forward the start of the tax year.
However, taking all these factors into account still does not satisfactorily explain the shortfall in income tax, according to Dr Dan McLaughlin, the chief economist with Bank of Ireland Treasury.
