END-JUNE 2008 EXCHEQUER RETURNS

The following statement was issued today (Wednesday, 2^nd July, 2008) by the Minister for Finance, Mr. Brian Lenihan, T.D.

At end June, total voted expenditure was €205 million or 0.9 per cent below the published profile with both current and capital expenditure below the published profiles (Current: €177 million and Capital: €28 million). Tax revenue was €1,450 million or 7 per cent behind profile. In overall terms there was an Exchequer deficit of €5,648 million for the first half of 2008.

Commenting on the half year Exchequer results and on the Department of Finance’s revised economic forecasts for 2008, the Minister for Finance, Mr. Brian Lenihan, T.D. noted that:

“These results confirm the trend already established this year of lower than expected tax revenue receipts. This is due largely to lower growth than projected at Budget time and to a fall off in tax receipts as a result of weaker property market activity.

Because of this and in the light of the latest economic data available at end-June, my Department has today published a revised economic forecast for 2008. Overall economic conditions across the economy remain sound with growth outside the housing market (in the manufacturing, services and agricultural sectors) expected to be a little higher than 4 per cent. GDP and GNP growth of around ½ per cent is now expected for this year. The downside risks identified in the Budget have materialised in terms of the extended credit crunch, all time high oil prices and adverse exchange rate movements together with weaker domestic demand.

The outlook is for tax revenues to remain weak for the remainder of this year. Consequently a tax shortfall of the order of €3 billion has now been factored into the budgetary arithmetic for this year.

While the level of economic growth this year is very modest, it must be remembered that the overall level of economic activity remains strong. Output in 2008 will be over 30 per cent higher than in 2002.

In terms of Government spending, the position at the mid-year point shows that overall expenditure is running at 11 per cent ahead of the same period for last year. There are a number of spending pressures due mainly to higher unemployment. Such pressures will be addressed within the overall spending targets for 2008 to ensure that a sound Exchequer position is maintained. At this stage the General Government Deficit for the year could be about 2¾ per cent of GDP.

Fortunately, we are facing these challenges from a position of strength. In the last ten years, resulting from very strong economic growth, employment has increased from around 1.4 million to 2.1 million with a further modest increase expected this year. Our General Government Debt has declined from 53 per cent of GDP in 1998 to approximately 25 per cent at end 2007 or 14 per cent on a net basis, when the assets of the National Pensions Reserve Fund are taken into account.

Nonetheless the Government will take firm action now so as to ensure that the public finances in the years ahead are kept on a sustainable footing. Sound public finances have been critical to Ireland’s success over the last decade and are key to future growth. The Government will be examining a package of measures to be announced to the Dáil following next week’s Government meeting.

Looking ahead, it is expected that overall economic activity will increase by 2¼ per cent next year. Continued pursuit of sensible policies will help ensure that the economy is well placed to return to trend growth of about 4 per cent once the current difficult economic conditions pass.”

End
Detail Material

Revenue

Total current receipts in the first half of 2008 amounted to €19,525 million compared to receipts of €21,124 million for the same period in 2007.

Tax Revenue, at €19,127 million is €1,450 million, or 7 per cent, behind profile at end-June due mainly to the poor performance of VAT and Capital Gains Tax.

Non-tax revenue in the first six months of 2008 was €398 million. This compares to €310 million for the same period last year.

Capital receipts for the first six months amounted to €1,322 million compared with €907 million for the same period last year.

Expenditure

Total net voted spending at €22,703 million at end-June was €205 million or 0.9 per cent below the published profile. Year-on-year growth in the first half of 2008 was 11 per cent. The Revised Estimates provide for an increase of 9.5 per cent for 2008 as a whole.

Net voted current spending in the first six months of 2008 at €19,523 million was €177 million or 0.9 per cent below the published profile. Year-on-year growth in the first half of 2008 was 8 per cent. The Revised Estimates provided for an increase of 9.1 per cent for 2008 as a whole.

Net voted capital spending in the first six months of 2008 at €3,180 million, was €28 million or 0.9 per cent below the published profile. When compared with the first half of 2007 the increase was 31 per cent or €758 million.

Non-voted capital expenditure in the first half of 2008 was €845 million.

Expenditure on Central Fund Services totalled €2,948 million in the first six months of 2008 compared with €2,151 million in the same period last year.

Economic Forecasts

On foot of the latest economic data available at end-June, the Department of Finance has revised its economic forecasts for 2008. Growth of ½ per cent is now projected for this year, see attached for further information.