Covid hit to public finances not as bad as feared

Cantillon: Exchequer returns for 2020 are expected to be better than originally forecast

Full-year exchequer returns for 2020, due out later on Tuesday, will show a decline in the Government’s annual tax take. This is understandable in the context of a global pandemic that has triggered a surge in unemployment and a sizeable decline in consumer spending.

The good news is that the falloff in tax receipts is expected to be much less than initially feared, and that means the Government will be in a better position to support vulnerable workers and sectors in the months ahead.

Back in March and April, with unemployment spiralling and consumer activity locked down, the Government’s two main tax channels, income tax and VAT, looked to be heading off a cliff.

However, the most noteworthy aspect of recent exchequer returns has been the resilience of income tax, a reflection of the fact that the worst-hit workers have been those in low-paying sectors of the economy which deliver relatively less in terms of income tax.


While VAT has taken a bigger hit with consumer activity curtailed on the back of on-off restrictions, the sales tax did improve as the year went on.

Data for the first 11 months of 2020 showed that the Government took in €51.1 billion in taxes, down almost 7 per cent or €3.7 billion on the previous year. Within this income taxes were €19.5 billion, down 7.5 per cent on the previous year, while VAT receipts totalled €12.2 billion, nearly 18 per cent down on 2019.

Peter Vale, a tax partner at Grant Thornton Ireland, reckons the end-year numbers will be significantly better than feared at the outset of Covid, perhaps to the tune of €6 billion.

He also notes that the deferral of the income tax deadline to December could see the figures improve further in the final month of 2020, albeit while warning that the move to Level 5 restrictions will impact the figures for the early part of 2021. “However, 2021 will also see the exchequer receive some payments that were deferred from 2020,” he says.

Vale says the spectre of large corporate losses impacting on 2021 corporation tax receipts appears to have diminished, which bodes well for maintaining wage and other supports until the pandemic has abated.