Lucinda Creighton (Dublin South East, Fine Gael)
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Question 89: To ask the Tánaiste and Minister for Finance the basis for his projection that tax revenue will be less than projected in budget 2007 and borrowing will be greater; and the implication of these trends for budget 2008. [23569/07]

Brian Cowen (Laois-Offaly, Fianna Fail)
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At €31,462 million, Exchequer tax receipts to end-September were €490 million or 1.5% below profile. They were up 6.1% on the same period last year. Corporation tax and income tax both performed well, coming in at €296 million and €56 million above profile respectively, reflecting the health of the economy generally. Receipts from each of the other main tax heads were below profile. Stamp duties were €401 million below profile, excise duties were €225 million below, VAT was €132 million below and capital gains tax was €107 million below. A significant amount of tax revenue is due for collection in the last quarter of the year, especially in November when a particularly large share of tax is collected annually from corporation tax, capital gains tax and income tax of the self-employed.

The performance of tax revenue in the coming months, particularly in November, will inform the position for the year as a whole. As of now, a shortfall of up to €1 billion in taxes this year is the current estimate. However, this shortfall will be offset to some extent by positive developments on other elements of the Exchequer account and an overall Exchequer deficit of up to €1 billion now seems likely at year-end. The budget day estimate was for a deficit of €546 million this year.

As is customary, I will outline to the House in early December my budget for 2008. As an important first step I will publish my pre-budget outlook later this week.

Richard Bruton (Dublin North Central, Fine Gael)
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What are the other revenue sources that will mean that an apparent deficit of €1 billion will only be off by €500 million at the end of the year? Has the Minister had cause to revise what his economists call elasticities concerning various taxes, in other words the relationship between growth in income tax and growth in incomes? Has he had cause to revise that in any way as a result of the experience to date?

Brian Cowen (Laois-Offaly, Fianna Fail)
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Some of the offsetting issues relate to the cost of debt repayments. As of now, however, the deficit is estimated to be €1 billion over a projected estimate of €546 million at budget time.

Richard Bruton (Dublin North Central, Fine Gael)
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The Minister is €1 billion off on tax and €500 million off on borrowing.

Brian Cowen (Laois-Offaly, Fianna Fail)
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Yes, but we estimate that there will be some offsets in terms of debt repayment issues and NTMA issues. What was the Deputy's second point?

Joan Burton (Dublin West, Labour)
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Elasticity.

Richard Bruton (Dublin North Central, Fine Gael)
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Yes.

Brian Cowen (Laois-Offaly, Fianna Fail)
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This year, together with the Central Bank, the ESRI and others, my Department examined the question of how to improve forecasting in order to be as accurate as possible, not that we were very inaccurate. Obviously, it is always difficult to project or predict improvement in property markets, depending on the extent of activity that occurs. I will receive that report shortly.

Joan Burton (Dublin West, Labour)
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What are the implications for budget 2008 of the trends the Minister has outlined? In last year's budget he promised that he would reduce the top rate from 41% to 40% and strongly indicated that he would ensure tax credits and allowances were kept in line with inflation. Does he now have room to effect those changes and will he make them?

Brian Cowen (Laois-Offaly, Fianna Fail)
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Last year's points were made on the basis of maintaining current economic strength. In the first six months of this year the economy improved by 6.4% but there has been a different story in the second half. We will have to make decisions closer to budget time, when we know the outcome of revenue trends, where we stand on future expenditure levels, and how we will try to maintain a capital investment programme. There will be a moderation in day-to-day current expenditure next year compared to recent years.

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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The Exchequer returns to the end of September show a deficit in excess of €3.1 billion. The Minister hopes the shortfall in the expected returns at year end will amount to approximately €1 billion. Does he have any information that gives him confidence that there will be a windfall over and above the usual upturn in receipts in the last quarter of the year? In the light of the lower than expected tax revenue what options is he considering? For example, will he borrow in order to fund some of the capital projects under the national development plan, rather than cut funding for essential public services?

Brian Cowen (Laois-Offaly, Fianna Fail)
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We have had a strong budgetary position recently, bringing in surpluses in ten of the past 11 years, while also having an unprecedentedly large capital programme, enhanced by the national development plan, as well as increases in current expenditure. A significant amount of revenue comes in at the end of the year, in October and November, from the self-employed and in corporation taxes. We do not have a profile of receipts and expenditures month on month of the varying figures, taking into account that more than one quarter of our revenue arrives in the last six weeks of the year. That explains why one expects a significant reduction in the figure of €3.1 billion.

We had projected that tax receipts in 2007 would increase by 7.8% over last year's record levels. They were at a figure of 6.1% in the first six months but there will be a further drag going into the final three months. Even allowing for significant tax income in the last couple of months, on tax heads which are still holding up, we expect the total increase in tax revenue this year over last year to culminate at a figure of approximately 5.5% based on the information we have available to us after nine months. We will have a more accurate assessment as we get close to the budget.

Having left a surplus position moving into a year such as this in which receipts, for example, from the residential property market have reduced, we expect to come in with a surplus this year. We can still provide for maintaining the existing level of services this year, already at a record high, and look to the unified budget proposal on 5 December, where we will take taxes and expenditures together, to see how we can maintain the level of output and keep unemployment levels as low as possible.