Ireland is confident of meeting this year's fiscal goals under an EU-IMF bailout despite falling consumer demand hitting spending-related tax receipts, the government said on Monday.
Ireland is aiming to squeeze its budget deficit, currently the worst in the euro zone, to 10 per cent of gross domestic product (GDP) or €18.16-billion this year from €15.66-billion in 2010.
The government is currently reviewing all public sector spending ahead of next year's budget, the latest in a long line of austerity plans, as it strives to meet a goal of getting the deficit to under 3 per cent of GDP by 2015.
On a headline basis, Ireland's budget deficit was €10.8-billion in the first half compared with a shortfall of €8.89-billion a year ago.
Stripping out the €3-billion funnelled to defunct lenders Anglo Irish Bank and Irish Nationwide in January, the budget deficit in the first half would have been €7.8-billion, a reduction of €1-billion on the previous year.
"Although there is some weakness in certain tax-heads, the budget day target for tax revenue in 2011 of €34.9-billion remains achievable," Finance Minister Michael Noonan said in a statement.
Tax revenues stood at €15.3-billion, 0.7 per cent below target, due to weaknesses in sales tax returns and corporate tax returns. Crucially, income tax, the most important tax bracket, came in on target.
Economists said there were still downside risks to the government's full-year targets and the weakness in spending-related taxes meant the government, elected to office in February, would have to make some unpalatable decisions in its first austerity budget in December.
"I think there is downside risk on the spending related tax receipts because core retail sales have fallen for four consecutive months," said Dan McLaughlin, chief economist with Bank of Ireland.
"It looks as if consumer spending will fall 2.5 per cent in volume terms this year. I would say that it is considerably lower than they envisaged at the start of the year."
A Reuters poll released earlier on Monday showed that the outlook for retail sales has worsened for 2011.
Prime Minister Enda Kenny has ruled out further increases in income tax or cuts to social welfare, narrowing the country's options for next year's budget.
"It's good news that it's on target but these figures are still telling you of the size of the task that lies ahead in terms of reductions to public spending," said Austin Hughes, chief economist with KBC Bank.
"It's difficult to see why the consumer would suddenly come to the rescue."