Donohoe warns of cost of pandemic as budget deficit swells to €6.1 billion in May

Minister for Finance Paschal Donohoe has warned of “the long-term cost to the State” of providing financial supports to workers and companies affected by the coronavirus as the latest exchequer returns point to a rapid deterioration in the Government’s budgetary position.

The figures, published by the Department of Finance, show the Government's budget deficit - the difference between what it spends and what it collects in tax - swelled to €6.1 billion in May as spending on health and income supports continued to soar.

This compares to a deficit of just €63 million at the same point last year.

The year-on-year deterioration was driven by a large increase in Government spending, which was 19 per cent or €4.1 billion greater than expected at €26 billion in May.

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The figures showed spending by Department of Employment Affairs and Social Protection, which operates the Government’s two pandemic unemployment assistance programmes, was 67 per cent more than expected at €7.4 billion.

“There will be a long-term cost to the State from these measures and that cost, over time, will have to be addressed,” Mr Donohoe said.

However, he said the running of these kinds of deficits was important for the economy and society at this point.

Mr Donohoe also insisted that much of the heavy lifting in terms of reducing the deficit would be delivered through economic recovery.

“Tax receipts will recover, citizens will return to work and public expenditure will return to ordinary levels,” he said.

As spending rose, the latest exchequer figures also showed a marked decline in tax revenue as a result of fewer people working and less consumer spending.

VAT, which reflects retail activity, took the biggest hit, coming in nearly €1.6 billion (22 per cent) behind expectations at €5.7 billion for the five-month period.

Income tax receipts generated €9.1 billion, which was nearly 5 per cent better than expected, but this was against a revised forecast and the monthly receipts were 7.8 per cent below profile.

Corporation tax

The one bright point was corporation tax, which generated €3.5 billion for the period, 37.5 per cent more than expected. May is typically one of the most important months for the business tax and the out-performance was linked to large payments from a small number of firms.

‘Today’s figures show that the expected steep decline in consumption taxes has been offset by a rise in corporation taxes and relatively resilient income taxes,” Mr Donohoe said.

“ In relation to corporation tax, as I have said many times before, receipts of this order will not last forever. Even if receipts prove resilient during the current crisis, they will decline in the near future,” he said.