The fiscal situation improved in the third quarter of 2010, with the budget posting a surplus of EUR11.9m (US$15.4m), following a contraction of 15.8% year on year in expenditure and a 5.5% decline in revenue. Tax receipts shrank by 2.6% year on year, following a collapse in direct tax revenue, with personal income tax and corporation tax receipts plunging by 25% and 71.2% year on year, respectively, partly as a result of tax rate cuts introduced in January 2010. Indirect taxes fared better, with the biggest source of fiscal revenue, value-added tax (VAT), up by 7.6% year on year, excise duty rising by 0.3% and customs tariffs by 15%. The increase in the rate of social contributions levied on wages, which was introduced at the same time as the tax rate cuts, helped to boost social contributions by a robust 14.2% year on year. All other revenue categories posted year-on-year contractions, with receipts from fees down by 4.8%, from duties down by 15.9%, and from loan repayments down by 96.6%.

The sharp drop in expenditure was the result mainly of a significant contraction in non-current expenditure. Current expenditure shrank by only 1.2% year on year, with the two wage bill categories, gross salaries and contributions and "other personal income", soaring by 32.8% and 69.5% year on year, respectively. Among the other current expenditure categories, spending on supplies and services declined by 17.9% year on year, interest payments were down by 34.2%, and subsidies were down by 67.5%.

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Social security transfers declined in the third quarter by 5.2% year on year, but at EUR109.5m they remained EUR17m above the receipts from social contributions. Other transfers dropped by 26.4%, while capital expenditure was halved compared with a year earlier, contributing to a large underspend in the first nine months of the year, with only slightly more than one-third of the planned expenditure being spent in that period. Loans and credits plunged by 93.8% year on year in the third quarter-down to EUR1m from EUR15.2m a year earlier.

The surplus in the third quarter, together with a surplus of EUR23.9m in the second quarter, helped to eliminate the cumulative deficit of the first nine months of 2010. The outturn was considerably better than the projected January-September deficit of EUR156.3m contained in the budget. The improved fiscal outcome resulted from a sharper under-execution of expenditure than revenue; the outturn of expenditure was 81.9% of the planned amount, while revenue amounted to 96.9% of the planned amount. However, with much of the annual expenditure usually executed in the final quarter of the year, the full-year budget for 2010 was set to produce a large deficit.