Heavy borrowing to finance Covid supports to continue for rest of year

The Coalition will continue to borrow heavily to finance Covid supports for the rest of this year, growing the budget deficit and the national debt, but will seek to wind down the exceptional spending and broaden the tax base into next year.

Additional borrowing of almost €3 billion will be required to finance the stimulus plan announced on Tuesday by the Government as spending on Covid measures continues for the remainder of the year.

Although the Government was fiercely criticised by the Opposition for planned cuts to the Pandemic Unemployment Payment (PUP) in the autumn, the Economic Recovery Plan will see deficit spending extended on Covid supports and fresh funds made available for investment in green projects and in education and training.

Ministers and senior officials have been briefed that the increase in the deficit as a result of the measures announced will be over €3 billion by next year, signalling a willingness in Government to continue borrowing to pay for the cost of the pandemic.

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It will bring the projected budget deficit – the difference between money raised in taxes and money spent by the government running the country – to more than €20 billion this year, out of total expenditure of about €90 billion.

Fiscal response

But the Government also sought to signal on Tuesday that the large fiscal response to the pandemic – large-scale borrowing to sustain public services, businesses and workers – will be wound down in the second half of the year as the country opens up and the economy recovers.

It also moved to broaden the tax base by changes to the Local Property Tax paid by householders and pointed to changes in employers’ PRSI later this year.

The Employment Wage Subsidy Scheme will continue until the end of the year at an additional cost of €2 billion, though there may be changes to employers’ PRSI, Ministers signalled.

As expected, the PUP, which has seen workers who lost their jobs receive weekly payments greater than normal social welfare levels, is to be gradually wound down from September onwards.

Sinn Féin and other Opposition parties sharply criticised the Government for the move, with Sinn Féin leader Mary Lou McDonald accusing the Government of a lack of “basic fairness”.

However, Taoiseach Micheál Martin rejected the criticism, dismissing the charge that the Government was introducing austerity policies. He said the plan unveiled was “the opposite of austerity”. Other Opposition parties echoed the austerity charge.

Tax net

The Government also signalled that it would reform the Local Property Tax, bringing thousands of homeowners who have bought houses since 2013 and were previously exempt – about 100,000 of them – into the tax net.

It is expected that a third of homeowners will face increases of around €90 in their bills as part of changes due to be unveiled by the Government on Wednesday.

The changes will see the bills of over 50 per cent of households remain the same. However, 33 per cent of homeowners will see an increase in their yearly charge and 3 per cent will move up two or more bands. Some 11 per cent of homes should see a decrease in their property tax bills, it is understood.

Sinn Féin renewed its calls for the property tax to be scrapped.