Bad, Bad, Bad. Exchequer Returns Out

And they are bad. The deficit now stands at €3.7bn. Income on the current side has dropped almost 25% compared to the first three months of last year from €11.1bn to €8.4bn (€2.6bn gap).

Current income is up by about €500m which is likely a relfection of welafre inreases, every 100,000 jobs jost costs around €2bn in welfare/lost tax. The budget on Tuesday is a huge nightmare, Labour today looked at a gap of €2.8bn as a fair hit for Tuesday. The figures put all the pressure on expenditure side – taxation is going up no matter what.

We are looking at €34bn income and anywhere up to €60bn in expenditure.

Lenihan’s statement:

As the economy has continued to slow, we have seen significant increases in the numbers out of work. While expenditure has been successfully contained across most areas, the additional welfare pressures mean that Social Welfare payments are now running at a rate of 12% above the same period of last year. Over the coming months further pressures will likely emerge in this area of Government spending.

In terms of taxation, all areas of taxation are now significantly down on the same period of last year. The main four tax areas – VAT, Income Tax, Corporation Tax and Excise Duties are now collectively 18½% down on an annual basis.

At the start of the year, the 2009 estimate for tax revenue was set at €37 billion. That represented an annual decline of 9¼%. At end-February my Department expected, on a no policy change basis, tax revenue of the order of €34 billion in 2009. This remains the Department’s current working estimate.

…

“There is no question that there has been a very serious deterioration in the public finances. Right now, reflecting the very weak international situation and the very significant domestic developments, the Irish economy is anticipated to contract by about 6¾% in GDP terms (and around 7% in GNP terms) this year. Reflecting this extremely weak economic climate tax revenue is back to levels last seen in the early part of this decade and expenditure, mainly as a result of the significant increases in unemployment, is running ahead of where we had planned for.

The Government has already taken action to address this unsustainable position and we must recognise that the budgetary position will take a number of years to correct. Next week’s Supplementary Budget will take further steps to improve the immediate prospects for the public finances as well as charting a multi-annual course of correction to achieve a deficit of below 3% of GDP by 2013. In doing so, I will focus on addressing the underlying deficit which is not directly related to the global business cycle.”