Covid-19 spending leaves exchequer €12bn in the red at end June

A €32 billion bill to combat the impact of Covid-19 left the State almost €12.3 billion in the red at the end of last month, according to June’s exchequer returns.

The Department of Finance said on Friday that the exchequer deficit – the difference between taxes collected and the amount Government spent – was €5.3 billion for the six months to June 30th.

However, for the 12 months to the end of June, the State’s deficit was €12.285 billion. The department noted that this was a “better indicator” of tax and spending trends.

Department officials and Government officials blamed the ongoing cost of Covid-19 for the shortfall over the 12 months to June.

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Michael McGrath, Minister for Public Expenditure and Reform, noted that the Pandemic Unemployment Payment and Employee Wage Support Scheme cost almost €32 billion during that period, when the Government spent €87 billion in total.

In the first six months of the year, the State collected €29.5 billion in taxes from workers and businesses, almost €3 billion more than during the opening half of 2020.

Over the same period, income from other sources, including dividends from State-owned enterprises, was almost €1.6 billion, against €4.277 billion in the first six months of last year.

This left the State with total income of €31 billion, while it spent €34.9 billion on running Government departments, leaving a shortfall of €3.9 billion.

Spending on infrastructure and public projects left the Government with a further shortfall of €1.4 billion, bringing the total deficit for the first six months of the year to €5.3 billion.

Income tax

Workers paid €2.04 billion in income tax last month, the exchequer returns show, while businesses paid €2.8 billion in tax on their corporate profits.

A heavy concentration of receipts from a small number of companies helped corporation tax beat predictions, the department said.

By the end of June, the State had collected €7.2 billion in VAT, the sales tax that is a good barometer of spending.

The first half total was 21.7 per cent ahead of the same period in 2020, and €335 million more than the figure the Government predicted.

Peter Vale, tax partner with accountants Grant Thornton, calculated that VAT receipts had returned to pre-pandemic levels. "It shows how well the Irish economy has weathered Covid," he argued.

Tax receipts last month totalled €5.8 billion, €662 million ahead of Government projections.

Paschal Donohoe, Minister for Finance, said that while Covid costs meant the State had to continue borrowing heavily, tax returns meant it could "look forward" with confidence to the recovery.

“Income taxes and VAT, in particular, remain robust as businesses and consumers have shown remarkable adaptability and resilience,” he added.

Mr McGrath pointed out that Covid-19 had hit departments’ ability to spend on capital projects. He pledged to monitor progress for the rest of the year.

“While we are still facing uncertainty in relation to Covid, the rollout of the vaccine is supporting a recovery in society and the economy,” he said.

The Minister said that the Government remained committed to the National Economic Recovery Plan.