Ireland's government missed its revenue targets in October as weak domestic demand and stubbornly high unemployment hit tax returns, putting pressure on Dublin's deficit goal for this year under an EU-IMF bailout.
Ireland has pledged to shrink its shortfall to 10 percent of gross domestic product (GDP) this year, and the finance ministry said on Wednesday that corporate tax returns raised in November, a key month for the tax, would have a significant impact.
Analysts expect Dublin will meet its deficit goal given that spending is below target, but they said the disappointing October exchequer data showed how risky it would be for Finance Minister Michael Noonan to go beyond a minimum 3.6 billion euros (3.1 billion pounds) in austerity measures to ensure next year's budget deficit is squeezed to 8.6 percent of GDP.
The main aim at this stage should be to protect growth so we can generate the revenues going forward to meet our budgetary targets rather than just implementing measures in the budget in a crude mathematical exercise to get the budget deficit down as quickly as possible, said Alan McQuaid, chief economist at Bloxham Stockbrokers.
The minister can speed up the austerity process, if so desired, when the economy gets a bit more forward momentum.
Noonan will unveil his fiscal adjustment plans for 2012-2015 on Friday along with updated growth forecasts. The 2012 budget will be unveiled on December6.
Overall, the budget deficit widened to 22.2 billion euros at the end of October from a shortfall of 14.4 billion euros a year ago largely due to capital injections into the country's lenders.
Stripping out the near 11 billion euros in capital funnelled to the banks and including a 1 billion euros gain from the sale of part of the state's share in Bank of Ireland
While tax revenues rose 8 percent to 26.7 billion euros in the 10 months to the end of October from a year ago they were 0.7 percent below target due to weak sales tax returns and income tax revenues.
Sales tax returns were 383 million euros, or 4.5 percent below target after five straight months of shortfalls.
Spending was 2.5 percent below target at 37 billion euros.