Dáil Éireann Debate, Wednesday - 13 May 2020
87. Deputy Pearse Doherty asked the Minister for Finance the projected impact on the public finances as a result of a loss of trade and economic activity due to the Covid-19 outbreak in 2020 and 2021 including impact to revenue, expenditure and the General Government Balance; and if he will make a statement on the matter. [5016/20]
Amharc ar fhreagraIn January the Medium Term Fiscal Strategy (MTFS) outlined, at a high level, the growth, revenue, expenditure and corresponding general government position over a five year horizon. The Stability Programme Update (SPU) 2020, published in April and formally submitted to the European Commission and European Council, incorporated the impact of the Covid-19 pandemic and the adopted policy responses to support households and employees.
The economic impact of Covid-19 and the implemented support measures mean that tax revenue will be significantly lower and Voted expenditure higher than the position in January. As a result a General Government Deficit of 7.4 per cent of GDP is likely this year. The following table sets out the impact on revenue, expenditure and the General Government Balance (GGB):
|
Difference between SPU and MTFS |
2020 |
2021 |
|
Tax revenue, € billion |
-14.0 |
-12.3 |
|
Voted expenditure, € billion |
+8.0 |
+1.5 |
|
General government balance, p.p. |
-8.1 |
-5.1 |
The projections outlined above are based on the assumption that economic activity bottoms out in the second quarter, with gradual recovery thereafter. In addition, Government will shortly bring forward an economic recovery plan, setting out its approach to repairing the damage caused by the pandemic. The costs of this are not included in the deficit projection outlined above, as decisions have not yet been taken.
The assumption of gradual economic recovery later this year and into next year should benefit general government revenues, notably through the taxation channel. General government expenditure looks set to fall next year as temporary policy support is unwound. The downward path for interest expenditure will continue, although at a slower pace: while the effective interest rate on public debt continues to decline, the State is carrying a larger burden of debt on foot of the very large deficits this year and next.
On 2nd May the Government adopted a further suite of measures focused on the business sector. Some of these measures will require legislation to be enacted, which will be a matter for the next Government. The total amount of these additional business support measures is €6.5 billion.
From a statistical perspective some of these measures will be subject to accrual and others will be financial transactions, therefore the impact on the GGB will differ. The Credit Guarantee Scheme, for example, will be a contingent liability rather than an actual liability.
Thanks to appropriate budgetary policy over recent years, we meet this challenge from a position of strength – a budget surplus, cash reserves and the establishment of the Rainy Day Fund.
