Monday, February 8, 2010

Tax Revenue for 2010 will fall below €30 billion.

As of today (08/02) I predict that Exchequer tax revenues for 2010 will be less than €30 billion for the first time since 2002 (€29.3 billion).  This was fine to fund 2002 expenditure but not for the 2010 expenditure which is nearly twice as big.  The Department of Finance still believe the figure will be above €31 billion but are getting closer to the truth.

A week before December's Budget the Department released the Book of Estimates for 2010. In this short document the Department give their forecasts for the coming year under the prevailing policies.  On page 5 the prediction for tax revenue for 2010 is given as €31.9 billion - a drop of just 4.5% on the 2009 outturn.

At this point it may be worth noting the uselessness of Department of Finance predictions. 

When the Book of Estimates was released in December it also contained a forecast for the full-year tax revenue for 2009 of €32.6 billion.  This was a forecast of tax revenue after 11 of the 12 months of 2009 had passed.  Some three weeks later when the actual outturn of €33.4 was released by the Department, we were told that this was further evidence of the economy "turning the corner" as tax revenue came in ahead of forecast.   For example the Irish Times has a piece that includes lots of bad news but does say that "tax revenues in 2009 came in €473 million higher than was forecast in budget 2010."  There is also a paragraph that goes:
"Department of Finance official Michael McGrath said the department would not be changing its budget day tax forecasts, despite the “slight improvement” in revenues in December. The Government said last month that it expects to receive €31.9 billion in tax receipts during 2010."
The only "improvement" was relative to the low forecast the Department gave three weeks earlier.  Tax revenue for the year was down 19% on the previous year.

Anyway back to our forecasts for 2010.  We can see from the quote that at the start of January the Department was still predicting tax revenues of €31.9 billion.  Last week the Department published the Exchequer Statement for January.  This shows that tax revenues are down 17.7% on the same month last year.  This is a bit more than 4.5%. 

At the same time the Department released a Profile of Tax Revenue for 2010.  With little fanfare we see than the Department has revised downward its forecast of tax revenue by some €880 million to €31.05 billion.  This gives a predicted drop in tax revenue of 7%. [Further exploration reveals that this figure also appeared on page 47 of the December release of Stability Programme Update.]

As the year progresses (and more evidence emerges) it is likely that the Department will continue to scale down their forecasts of tax revenue for 2010.  By the time of the Book of Estimates for 2011 we may see a forecast of closer to €29 billion.  When the actual figure emerges a few weeks later we may hear further cries of tax revenue coming in ahead of forecast. Oh brother!

Here are some estimates of 2009 tax revenue from the Department of Finance website.  The actual outturn was €33.4 billion.

Forecast Error
Budget 2007
(Dec 2006) Page 2
€56.3 billion-€22.9 billion
Budget 2008
(Dec 2007) Page 2
€51.8 billion-€18.4 billion
2009 Book of Estimates
(Dec 2008) Page 4   
€41.2 billion-€7.8 billion
Budget 2009
(Dec 2008) Page 2
€42.8 billion-€9.4 billion
Supplemental Budget
(April 2009) Page 13
€34.4 billion-€1.0 billion
2010 Book of Estimates
(Dec 2009) Page 5
€32.6 billion+€0.8 billion

[Note: I have made a small bet with a colleague on the tax revenue outturn.  €10 to me if the figure is below €30 billion.  I'll be down €10 if the figure is above €30 billion.  As of now I like the odds based on the trend we recently discussed.]

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