Ireland’s budget deficit continued to expand in July due to the costs of emergency supports for workers and businesses. A deficit (excluding non-general government items) of €9.8bn was recorded in the seven months to the end of July.
This compared with a deficit of €2bn at the same stage in 2019, with all the deterioration due to higher spending.
Government spending so far this year is up 22% year on year (yoy). Of this c.€9bn increase, two thirds is due to wage and unemployment supports. Another €1.8bn is due to increased spending in the health sector. With extensions to these schemes announced at the time of the “July stimulus”, Goodbody Stockbrokers say these figures will continue to grow over the coming months.
Despite falling by 19% yoy, taxes continue to come in well ahead of government expectations. In July, tax receipts were 21% ahead of expectations and are some €5bn (19%) ahead of targets in the seven months to end-July. Income tax was the big outperformer in July, illustrative of the progressive nature of Ireland’s tax system and the fact that the most affected sectors are on relatively lower pay.
Corporation tax continues to be the big outperformer in the year to date, highlighting the relative resilience of larger businesses in Ireland, relative to the situation that businesses in the leisure and hospitality sector are facing due to government restrictions and social distancing.
According to Goodbody Stockbrokers, "We have noted previously that Ireland has spent among the largest amounts per capita in response to COVID-19. This will be reflected in a budget deficit of c.€30bn in 2020 (16% of GNI*). This is the correct response to a temporary crisis but is clearly unsustainable in the medium-term. Based on the recent revenue/spending trends, the deficit may come in slightly lower than this figure."