Coronavirus forecast to punch €14bn hole in Government’s tax base

The coronavirus crisis is expected to shrink the Government's tax base by €14 billion this year, the Department of Finance has indicated.

In the latest exchequer returns for April, the department published a revised set of tax and spending forecasts for the year while noting that it expected the cost of the virus in terms of lost tax receipts to be in region of €13.9 billion.

The loss in revenue will be most keenly felt through income tax and Vat channels because there are less people working and less money being spent on goods and services because of the lockdown.

The latest figures show the Government’s budget deficit - the difference between what it spends and what it collects in tax - swelled to €7.5 billion in April. This compares to a deficit of €3.2 billion this time last year. The year-on-year deterioration, which equates to €4.3 billion, was driven in the main by increases in spending.

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The figures showed total expenditure for the four-month period was just over €20 billion. In year-on-year terms, this was up €3.8 billion or 23.5 per cent, reflecting primarily rises in health and social protection spending as a result of the pandemic.

The figures show tax receipts for the period were just under €15.5 billion, which was 0.6 per cent or €86 million down on last year.

However, the department warned that most of the hit to tax from coronavirus has yet to materialise. This is because VAT returns are not normally made by companies in April.

In addition, income tax receipts for April reflect payrolls in March before the economic lockdown, which saw hundreds of thousands of staff being laid off.

Minister for Finance Paschal Donohoe said the Government's Stability Programme Update (SPU), published last month, outlined a sharp deterioration in the public finances this year as a result of the Covid-19 pandemic.

“Today’s figures bear that out, with a fall in tax revenues and increase in expenditure,” he said.

Mr Donohoe said it was entirely appropriate that the Government uses fiscal policy to cushion the effect of the crisis in this way.

“ It is a vital tool in helping to support individuals, businesses and communities through this difficult period. We began this crisis with the public finances in good health - a budget surplus, cash balances and reduced debt - all grounded in an economy that was growing strongly,” he said.