The Government’s budget deficit for 2020 is expected to be €19 billion as Covid-related spending and weaker tax receipts push the public finances deep into the red. This compares to a budgetary surplus of €1.85 billion in 2019.
The year-on-year deterioration was detailed in the latest exchequer returns, published by Department of Finance, which show the exchequer generated a deficit – the difference between spending and tax receipts – of €12.3 billion last year.
This is expected to contribute to an overall general Government deficit of €19 billion for 2020, which equates to 5.5 per cent of gross domestic product (GDP).
The general Government deficit, as distinct from the exchequer deficit, includes non-exchequer spending and other financial transactions carried out by the State.
While large, the €19 billion figure is significantly smaller than the Government had feared, reflecting stronger-than-expected income tax and corporation tax receipts.
It means that Ireland is likely to have the smallest Government budget deficit of any euro area country in 2020.
The latest figures show the Government took in €57.1 billion in taxes in the year to the end of December. This was 3.6 per cent or €2.1 billion down on the previous year.
Coping
Corporation tax was the only major tax head to record an increase in 2020, ending the year €945 million higher at a record €11.8 billion with sectors such as pharma, information technology and financial services coping better than expected with economic conditions.
Income tax receipts also held up well, generating €22.7 billion for the year, which was just €224 million – or 1 per cent – down on 2019.
The resilience of income tax receipts has been one of the most striking features of the public finances in recent months.
“The sector specific nature of the majority of job losses combined with the progressivity of the income tax system served to protect income tax receipts in 2020,” the department said.
The combined year-on-year fall in VAT and excise receipts was €3.2 billion, as personal consumption – particularly of services – was heavily impacted by the public health restrictions.
The sales tax took the biggest hit, generating €12.4 billion, down nearly 18 per cent on 2019.
Total spending was €67.8 billion in 2020, up €13.7 billion or 25 per cent in year-on-year terms.
The rise in expenditure reflected increased departmental drawdown in response to the Covid-19 pandemic, particularly in relation to the Department of Health and the Department of Employment Affairs and Social Protection.
Social protection spending was 53 per cent or €5.7 billion more than anticipated.
Unprecedented
"The end-year exchequer returns show the scale of Government intervention during this pandemic," Minister for Finance Paschal Donohoe said.
“From an expected surplus of around €2.5 billion before the pandemic struck, to an estimated deficit of €19 billion, the strength and depth of the Government’s response is unprecedented in our country’s history,” he said.
“Although we once again enter a difficult period of tough but necessary restrictions, today’s figures point to some positive underlying trends in the economy,” he said.
Minister for Public Expenditure and Reform Michael McGrath said Budget 2021 was based on a prudent “no vaccine” assumption and both the Recovery Fund and the Covid Contingency Reserve were designed to ensure the funding is in place to continue the national fightback against this unprecedented challenge.
“I welcome the international confidence in the Irish economy and our public finances as indicated by continuing very low Government bond yields which are supported by the actions of the ECB,” he said.
The National Treasury Management Agency sold a larger-than-expected €5.5 billion of 10-year bonds on Tuesday at negative market interest rate, or yield, of about minus 0.27.
Goodbody chief economist Dermot O’Leary said tax revenues performed much more resiliently during the year than was expected but “large-scale Government support will also be needed this year given the recent surge in the virus and the risk of a relatively slow roll-out of the vaccine”.
