Figures from the Department of Finance show that the public finances deteriorated further in July, with tax receipts now €2.2 billion short of what had been expected at Budget time.
The tax take was €1.5 billion behind target in the first six months, prompting the Government to forecast that the figure for the full year would be €3 billion below expectations. After today's figures, economists now say this target could be missed.
The Exchequer deficit for the first seven months was €6.7 billion. The total tax take was €22.7 billion, compared with the €24.9 billion estimated by the Government at the start of the year.
A breakdown of the July figures shows that VAT receipts are running more than €1 billion behind target, a sign of weaker consumer spending. Stamp duties are around €300m lower and capital gains taxes are around €350m worse than expected. Income tax receipts are holding up relatively better, however, and are not far behind what had been projected.
Ulster Bank economist Pat McArdle described the VAT shortfall as 'breath-taking'. He said he now expected a €4.5 billion shortfall in tax receipts for the full year, adding that this meant the Government's announced spending curbs may not be enough to prevent the Government deficit breaching the EU limit of 3% of GDP.
'It is unlikely that additional spending cuts can be implemented in the short term. However, the pressure to achieve cuts much greater than the announced €1 billion in 2009 will now intensify,' the economist says.
Stockbroker Davy said it was sticking to its forecast of a €4 billion tax shortfall this year. 'Ireland may not breach the 3% deficit limit this year, but it will be very tight,' Davy said in a note.
