The Irish Times view on the public finances: big decisions are looming
Taxes have been hit by the pandemic, though in two areas they remain ahead of official forecasts made in April by the Department of Finance
Heading towards key decisions on the budget, Minister for Finance Paschal Donohoe faces a difficult task, though if tax returns remain ahead of expectations it will be some help. Photograph: Brian Lawless/PA Wire
The monthly tax returns are one of the most up-to-date indicators of the state of the economy. The most recent set of figures, for August, shows that the exchequer has moved heavily into deficit, to the tune of €9.4 billion, with spending rising sharply as a result of the pandemic. However, tax revenues remain stronger than expected, providing some support for the exchequer. Heading towards key decisions on the budget, Minister for Finance Paschal Donohoe faces a difficult task.
Taxes have been hit by the pandemic, though in two areas they remain ahead of official forecasts made in April by the Department of Finance. Corporation tax continues to rise strongly, driven – we presume – by payments from the large multinationals. Meanwhile, even more surprisingly, income tax is well ahead of target and returns for the first eight months are only slightly behind last year. Donohoe had indicated that borrowing this year might rise as high as €30 billion, but it is possible that the total may now be a bit lower.
Given the path of the pandemic, any additional wriggle room would be welcome. Support for businesses, at least in some sectors, may need to continue well into next year and beyond current cut-off dates. It is essential that public investment projects be funded in key areas, notably housing. And the exchequer needs some flexibility moving into 2021. The risk of the UK leaving the EU trading bloc without a deal adds another risk to an already difficult picture.
Fortunately, the exchequer can borrow at very low interest rates. There will be no shortage of demands for that money. The Government has broadly made the right calls, notably via the wage subsidy schemes and the pandemic unemployment payment, even if the decision to cut the main VAT rate remains baffling. Marrying these business supports with longer-term goals in areas such as health and housing will be hugely challenging. The economy fell very sharply in lockdown, as CSO data due today will confirm. While it has regained some ground since reopening, building on this will be a challenging task.