The pandemic lockdown punched a €6bn hole in Government finances as spending on welfare payments surged, although overall tax revenues held up remarkably well thanks to surging corporation receipts.
he monthly exchequer returns for May showed that voted spending had surged by a more than €5.2bn from a year ago, a level that was one quarter higher, to €26.1bn.
The overall deficit was €6.1bn at the end of May compared with a €63m deficit a year ago.
“The rise in expenditure primarily 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,” the Department of Finance said today.
Tax revenues of €6.2bn were collected in May, bringing the total tax revenue for the year to date to €21.7bn, roughly flat from a year ago.
Despite declines in other tax heads, corporation taxes plugged the gap even as sharp drops in consumer hit VAT receipts.
In May alone, tax payments by companies doubled from a year ago to €2.6bn.
Cumulatively corporation taxes, which are largely paid by big multinational companies, were €1.7bn ahead of the same period last year.
The Department however sounded a note of caution as to whether they would continue at this level.
“However, it should be noted that May is the last major month for the collection of 2019 corporation tax income. June, typically the second-largest month for Corporation Tax receipts, may give a clearer indication of how this tax will perform over the remainder of the year,” it said.
VAT receipts in May dropped by more than a third from a year ago to €1.5bn as a result of the lockdowns.
Income tax receipts in May also fell, down €137m to €1.6bn, although year to date they are €418m higher than the January to May period last year at €9.1bn thanks to a strong performance in January and February.
Earlier today, Robert Watt, the secretary general at the Department of Public Expenditure and Reform, said the State has “plenty of fiscal capacity” to keep borrowing to support the economy during the pandemic crisis, but the country needs to plan for stronger recovery than is currently anticipated.
Mr Watt told a webcast hosted by accountancy and consultancy group PwC this morning that the government never expected the type of surge in demand for housing that emerged following the financial crisis. He said a policy mistake was never anticipating such a “robust recovery”.
“One of the mistakes we made back in 2010, 2011, 2012 was that we never anticipated the rapid recovery because we all became, I think, so beaten down by the scale of the crisis and by the depth of recession and the challenges that we faced,” he said.
“So I think when we’re thinking about uncertainty and scenario planning, we also should be looking at a more optimistic assessment of perhaps a more rapid rebound in some sectors than is currently forecast.”