The latest Exchequer returns show that Government revenues continue to hold up relatively well despite the substantial shock to the Irish economy. Revenues at the end of August are just 0.4% below the same period in 2019.
Spending is up by 20%, leading to a deficit of approximately €10bn. At this stage, it appears that the earlier estimate of a deficit of approximately €30bn will prove too pessimistic.
Goodbody Stockbrokers say most tax headings are better than expected but income tax and corporation tax make up for the bulk of the outperformance. Despite the number of hours worked (as opposed to employment) being down 22% year on year (yoy) in the second quarter, income tax receipts fell by just 1% yoy in the first eight months of the year.
As Goodbody have pointed out previously, this is due to the progressivity of the income tax system and the sectoral impact of the pandemic affecting lower paid occupations more.
Corporation tax grew by 31% in the first eight months, exceeding targets by €1.9bn. Higher profitability in multinational sectors such as pharma and IT is likely to explain this. Spending continues to surge due to crisis-related programmes for health and the economy. Current spending grew by 24% yoy, with spending on employment affairs and social protection up by 48% yoy and health up by 16% yoy. Capital spending grew by 23% yoy.
According to Goodbody Stockbrokers, "At the current trend, the deficit may come in below €30bn in 2020, as previously anticipated. However, it may be the case that the government decides to use this “overshoot” in Budget 2021 for further targeted measures, particularly in those sectors that continue to be most affected by government-imposed restrictions."