Coronavirus punches €2 billion hole in public finances

The Government’s finances have been hit by the coronavirus crisis with tax receipts for March coming in nearly €800 million below profile while spending is up by an unexpected €1.1 billion due to increased health and social welfare expenditure.

Publishing the latest exchequer returns for March, Minister for Finance Paschal Donohoe also warned that the State’s financial position would deteriorate further in the coming months as the full impact of the economic shutdown materialised.

In particular, he noted that the massive surge in unemployment revealed in the latest live register numbers had not yet hit income tax receipts, the Government’s main tax channel.

He said tax revenues would continue to “decline steeply over the coming months” while on the expenditure side the Government had put in place significant resources to help fight the virus.

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“Combined with the fall in tax revenues, these measures will result in a large fiscal deficit this year,” he said, suggesting the economic cost of the coronavirus could top €16 billion.

The latest exchequer returns show the Government collected €12.9 billion in tax in the first three months of the year. But this was €788 million below what it had originally forecast.

The main drag was VAT, which was €986 million below profile at €4.1 billion. The sales tax was also 50 per cent, or €1.1 billion, below expectations on a monthly basis.

The Department of Finance said VAT receipts were "sharply under profile as a result of the response to Covid-19".

Income tax was less severely affected, coming in at €5.6 billion for the three-month period, which was just €60 million or 1.1 per cent less than had been forecast.

This, however, is expected to worsen significantly in the coming months on foot of rocketing unemployment.

Corporation tax, which hit a record €11 billion last year, came in 68 per cent above profile at €870 million, but most of business tax revenue comes later in the year.

Deficit

The figures left the exchequer with a deficit of €2.5 billion in March compared with a deficit of €966 million for the same month last year.

“At this early stage the full economic impact of the Covid-19 pandemic has not yet been manifested in taxation receipts,” the department said. “It is likely that revenues will continue to deteriorate significantly over the coming months.”

On the spending side, total gross voted expenditure for the three-month period was €17 billion, which was 7.1 per cent or €1.1 billion ahead of profile, primarily due to measures to fight the coronavirus. Health and social protection were the two departments that drew down the most extra resources with additional current spends of €205 million and €353 million respectively.

“Today’s figures show the start of a surge in Government spending to fight Covid-19,” Davy analyst Conall Mac Coille said.