Exchequer deficit swells to €14bn as lockdown hits tax take

Paschal Donohoe cites increase in spending and weaker revenues

Minister for Finance Paschal Donohoe.

Minister for Finance Paschal Donohoe.

 

The public finances fell deeper into the red last month as spending on various pandemic-related supports rose and tax receipts fell.

The latest exchequer returns, published by the Department of Finance, show the Government’s budget deficit - on a rolling 12-month basis – swelled to just over €14 billion in February.

This was fuelled by a combination of falling tax revenues and increased spending on financial supports for impacted workers and businesses.

Receipts

The figures show tax receipts for the first two months of the year came to €8.4 billion, which was 9 per cent or €828 million down on the same period last year.

While income tax receipts, at €4 billion, were marginally up on the corresponding period last year, Vat receipts were significantly down, reflecting the current lockdown, which has resulted in the closure of all but essential retail.

Revenue from the sales tax generated €2.65 billion in January and February, which was €400 million or 13 per cent down on last year.

The Department of Finance said as February was a non VAT-due month, the fall-off reflected “the substantial decline seen in January”.

Corporation tax, excise duty, stamp duty and capital gains tax (CGT) were all down on the previous year’s figures.

The Department of Finance last month suspended its normal monthly tax profiles, which are used to benchmark the performance of each tax head, because of the uncertainty caused by Covid-19.

On the spending side, the department said total gross voted expenditure to the end of February amounted to €12.3 billion, which was €2.1 billion or 20.5 per cent higher than the same period in 2020 and €356 million more than what the department had expected.

The main draw on the public purse was spending on the Government’s Employment Wage Subsidy Scheme (EWSS) and the Pandemic Unemployment Payment (PUP).

The two schemes fall under the remit of the Department of Social Protection, which spent just under €2.5 billion for the two-month period, which 35 per cent up on the same period last year.

Revenues

Speaking to reporters earlier, Minister for Finance Paschal Donohoe said he expected “that – as restrictions continue – tax revenues will continue to decline and we will continue to run a very significant deficit,” but he noted the ongoing rollout of vaccines provided some grounds for optimism.

Peter Vale, tax partner with Grant Thornton Ireland, said : “February is a quiet month for VAT so nothing much should be read into the figures for this month, down 13 per cent year to date”.

“ March 2020 saw VAT receipts drop by 50 per cent in the month; despite the lockdown this is unlikely to be repeated next month as consumers have adjusted to the new environment,” Mr Vale said.

“However it’s clear that Government supports continue to prop up much of the economy. Until a successful roll out of vaccines has taken place, it’s difficult to see a significant pick-up in economic activity and a return to more positive exchequer figures, particularly on the VAT and income tax front,” he said.