Deficit of €19 billion expected in 2020: Taxes down €2.1 billion & expenditure up €17.9 billion on 2019 – Donohoe & McGrath

• Today’s Exchequer figures show that tax revenues in 2020 were down €2.1 billion, or 3.6 per cent on 2019;
• Income tax receipts were down €224 million, or 1 per cent on 2019, a smaller than expected fall due to strong PAYE and self-employed returns;
• VAT receipts finished the year €2.7 billion, or 18 per cent less than 2019, as public health restrictions impacted consumer spending;
• Similarly, excise returns were down €500 million, or 8per cent on 2019;
• The only major tax head to increase in 2020 was corporation tax, up €945 million or nearly 9 per cent;
• Total net voted expenditure in 2020 was €67.8 billion. This represents a 25 per cent, or €13.7 billion increase on 2019;
• The rise in expenditure reflects increased departmental drawdown in response to the Covid-19 pandemic, particularly in the areas of health and social protection;
• An Exchequer deficit of €12.3 billion was recorded in 2020, a €13 billion deterioration on the previous year. The Exchequer deficit is estimated to contribute to an overall general government deficit of €19 billion, or around 5½ per cent of GDP.

An Exchequer deficit of €12,316 million was recorded to end-December 2020. This compares to a surplus of €647 million in 2019. The €12,963 million year-on-year deterioration in the Exchequer balance is primarily driven by increases in voted expenditure. Cumulative tax receipts of €57,165 million at the end of the year were down by 3.6 per cent or €2,149 million on last year. Receipts in 2020 benefitted from a strong performance in January and February, as well as solid income and corporate tax receipts, which have compensated — to an extent — for sharp declines in other tax heads, notably VAT and excise receipts.

Corporation tax was the only major tax head to record an increase in 2020, ending the year €945 million higher than 2019, as sectors such as pharma, ICT and financial services coped well with economic conditions. Income taxes similarly held up well, ending the year down €224 million, or 1 per cent on 2019. Although a strong start to the year (pre-Covid) is partly responsible, both PAYE and self-employed receipts significantly exceeded initial expectations. The sector specific nature of the majority of job losses combined with the progressivity of the income tax system served to protect income tax receipts in 2020. The combined year-on-year fall in VAT and excise receipts was €3,187 million, as personal consumption — particularly of services — was heavily impacted by the public health restrictions.

Overall, the strength of corporation and income taxes compensated to a degree for the fall in consumption taxes resulting in a year-on-year decline of €2,149 million, or 3.6per cent in aggregate tax receipts.

Total net voted expenditure was €67,849 million in 2020. In year-on-year terms, this was up €13,703 million, or 25.3 per cent on 2019. The rise in expenditure reflects increased departmental drawdown in response to the Covid-19 pandemic, particularly in relation to the Department of Health and the Department of Employment Affairs and Social Protection.

Commenting on the figures, the Minister for Finance, Paschal Donohoe T.D. said:

“The end-year Exchequer returns show the scale of Government intervention during this pandemic. From an expected surplus of around €2 ½ billion before the pandemic struck, to an estimated deficit of €19 billion, the strength and depth of the Government’s response is unprecedented in our country’s history. Although we once again enter a difficult period of tough but necessary restrictions, today’s figures point to some positive underlying trends in the economy. The Government will continue to use the resources of the State to protect the most vulnerable, support businesses and sustain incomes until our country emerges from this pandemic even stronger than before.”

The Minister for Public Expenditure and Reform, Michael McGrath T.D. said:

‘The figures published today show the full extent of the Government response to Covid-19 in 2020.  Gross Voted Expenditure in 2020 reached €85.3 billion, nearly €18 billion higher than 2019.

Just under €5 billion was spent on the Pandemic Unemployment Payment in 2020 together with €4.1 billion for the Temporary Wage Subsidy Scheme and its successor the Employment Wage Subsidy scheme, demonstrating the scale of the government’s commitment to protecting household income for people across the State.

Gross Voted Expenditure on Health grew by €3.4 billion to nearly €20.9 billion ensuring that the necessary resources were available to procure vital equipment, support vulnerable citizens and build a testing and tracing regime for the virus.

Budget 2021 was based on a prudent “no vaccine” assumption and both the Recovery Fund and the Covid Contingency Reserve are designed to ensure the funding is in place to continue the national fightback against this unprecedented challenge.

I welcome the international confidence in the Irish economy and our public finances as indicated by continuing very low Government bond yields which are supported by the actions of the ECB.”