Thursday, 17 June 2010
Question 8: To ask the Minister for Finance his views on the end of May Exchequer returns which showed a tax revenue shortfall of more than €1.4bn compared to the same period in 2009; and if he will make a statement on the matter. [25608/10]
At the end of May, €12.1 billion in tax revenue receipts had been collected. As Deputy Lynch points out in her question, this is a drop of approximately €1.4 billion on the amount collected in the first five months of 2009, which represents a year-on-year decline of 10.4 per cent. However, the monthly profiles for tax revenue published in early February, anticipated a significant year-on-year decline in the initial months of 2010, with receipts expected to recover during the course of the year to finish the year 6% down on 2009 in overall terms. This would represent a fall of just under €2 billion for the year as a whole.
In terms of the Government's budgetary targets, it is more appropriate to look at the performance of tax revenues against the monthly profiles. Overall, tax receipts in the first five months of the year were just €148 million below the target of €12.3 billion. This represents a shortfall of just 1%. While this is a slight worsening of the position at end-April, when receipts were on target, it should be noted that the amount scheduled for collection in May was large, representing the second highest monthly target for 2010.
On the individual tax-heads, receipts from VAT, corporation tax, capital gains tax, capital acquisitions tax and customs were all above target at the end of May, while income tax, excise duties and stamp duties were all below profile. The overall shortfall was largely driven by income tax receipts, which were €219 million below target for the first five months of the year. While the weakness evident in income tax receipts may be seen as a cause for some concern, it is too early to draw any conclusions for the outcome for the year as a whole. There has been considerable movement in the months to date, with income tax receipts hitting target in the months of March and April but falling short in the month of May. This performance has been echoed in other tax-heads, most notably VAT and corporation tax, where shortfalls in some months have been offset by surpluses in other months. While there are significant targets to meet in the months ahead, and no clear trend has emerged as yet, the budget 2010 forecast for tax revenues of just over €31 billion remains valid. We will assess the position further in light of the end of June Exchequer returns.
Is the Minister concerned that the structural deficit and the huge loss in revenue from the construction industry are gone forever? They will now be down at a very modest level. Has the Minister identified the ongoing loss from that deficit?
Does the Minister accept that if he can get people back to work - including work experience, graduate interneeship and apprenticeships, which the Labour Party has proposed - a couple of things can happen relatively quickly? When someone returns to work there is a saving in social welfare payments and, slowly but surely, the person's spending increases and they become a contributor to the income tax receipts. In addition, every time someone loses his or her job the cost to the State is about €10,000 per year in social welfare benefits. The debt spiral of deflation, as Ben Bernanke has described it in the United States, is not a good idea. More severe cutting causes job losses. The Minister's preference for cutting capital causes the deflationary spiral to get worse.
How does the Minister think EUROSTAT will treat the extra billions going to Anglo Irish Bank? Last year, the Minister disagreed with me when I said the €4 billion would count in our deficit, and it did. It now looks as though the €10 billion extra will not be €1 billion per year but rather €10 billion in one year. Can the Minister give a view on that?
Of course I am concerned. I have been concerned for a considerable period about the structural loss in our tax base occasioned by the property bust. The effect of it has been a substantial depletion in the amount the State received in capital gains tax and stamp duty receipts. I agree that has been a very serious problem. Any Government would be concerned about it, naturally. That is why the Commission on Taxation has made proposals for broadening the tax base and ensuring it is less elastic in the future. Clearly, one of the lessons highlighted in the reports is that a tax base which is subject to rapid upward and downward changes in tax receipts, because of the elastic character of certain receipts, is not structurally viable for the future. The Government is examining the proposals in that regard. I will bring proposals to the Cabinet in the context of this year's budget to ensure our tax base is more reliable in the years ahead. I agree that both factors - employment measures and general confidence in the economy - have to be attended to if we are to generate a viable revenue base.
Initiatives of the type mentioned by the Deputy - graduate internships and back to work arrangements, etc. - can be brought into operation now that final agreement has been reached on the Croke Park deal. It is disappointing that it took so long for that to happen. Now that agreement has been arrived at, we have an opportunity to make progress with these issues. Proposals that would generate confidence, in terms of income tax and employment numbers, can be pursued. I place considerable emphasis on the importance of sustaining general confidence in the economy so that individuals spend money and make investment decisions. Fiscal correction is necessary as part of the climate of sustaining confidence. Many people have called for a stimulus package. Our level of borrowing is such that it amounts, in itself, to the only stimulus package - and a substantial one at that - in which the Government can engage, with the exception of supply side stimulus measures that can be considered in specific sectors.
Having agreed with the first two points made by Deputy Burton, I would like to take issue with her third point. I do not have a preference for cutting the public capital programme. We have maintained capital investment at a very high level. Many of the reductions in the total volume of capital expenditure can be justified in terms of the cheaper tendering prices for elements of physical infrastructure that now exist. The question of how EUROSTAT will treat the capital sums that are required in connection with Anglo Irish Bank and Irish Nationwide, with which the Deputy concluded, is a matter for EUROSTAT. Clearly, the Department of Finance will liaise with EUROSTAT on the appropriate treatment of these matters. It is fair to indicate, as the Deputy did in her question, that a precedent that may have to be followed in relation to further payments has been set.
I would like to ask the Minister about the mechanism for forecasting the tax revenue shortfall. Will he make available to me his current estimates in relation to the interest costs for this year? It seems to me that we are not getting the full picture when it comes to the costs that apply to Anglo Irish Bank and the treatment of that bank. I was surprised to hear of the amounts of money the Minister has committed to the smaller institutions, such the as the EBS and the Irish Nationwide Building Society. I do not know whether the Minister was surprised to have to do so. We all know the Irish Nationwide Building Society would be another dead duck if it was not for its deposit book. Can the Minister give us an updated figure for the total amounts involved in the Government bank recapitalisation programme and the interests costs arising therefrom?
The interest costs arise from Exchequer borrowing, which is arranged by the NTMA. I can arrange for the NTMA to make an estimate. That estimate would be subject to revision at the end of the year. That is normally done before the budget. A final definitive figure-----
That has a very limited impact this year. The figure for this year will be drawn up by the NTMA towards the close of the year. On the separate question of bank capitalisation, I will arrange for Deputy Burton to be given the information she has sought on the institutions as a whole. The State now owns a controlling share in the EBS. The Oireachtas committee may well wish to make investigations with regard to the Irish Nationwide Building Society. The figure for the amount of the loss is far more definitive in the case of a smaller society like that than in the case of Anglo Irish Bank.