Government finances are in good shape with ample room for further spending on supports for businesses and to keep people in jobs, if the Covid-19 economic fallout worsens in the coming weeks, the final exchequer returns for 2020 suggest.
The December returns of tax revenue and spending showed a lower than expected exchequer deficit of €12.3bn last year despite the huge sums entailed in fighting the pandemic and keeping the economy from crashing into mass unemployment.
The resilience of income tax receipts, the largest of the Government's four main tax sources, which fell by only 1% in the year, as well as another record year for corporate tax revenues, helped the Irish Government finances weather the Covid-19 storm much better than once feared, Finance Minister Paschal Donohoe and Expenditure Minister Michael McGrath told reporters.
Under calculations prepared for the EU, the Government's budget deficit will likely be €19bn in 2020, or 5.5% of GDP, much lower than in many other parts of Europe.
Minister Donohoe said the rates of wage-subsidy will continue at current levels as long as the economy's current Covid-19 challenges last.
Conall MacCoille, chief economist at Davy, said that the figures showed the Government had the resources to spend more on business supports and sustaining jobs should the spike in Covid-19 cases last longer and lead to the closure of even more parts of the economy.
Mr Mac Coille said that the 5.5% budget deficit compares with a likely budget gap of 20% of GDP in Britain and around a deficit of 10% in many parts of the EU, while the Government was raising money from sovereign debt markets at negative interest rates.
There is "plenty of room to sustain and to add to if they are needed " to funds to support businesses and household incomes during any worsening Covid-19 economic crisis, Mr Mac Coille said.
The assessment comes as the National Treasury Management Agency completed the first sale of the new year to raise €5.5bn in debt by tapping a 10-year bond, at a negative interest of lower than -0.25%, reflecting "strong demand from a broad investor base for Irish sovereign debt", it said.
The Government's debt agency had raised €850m through a 2030 bond in November, which was also at a negative interest rate of -0.2%. Negative interest rates effectively mean that investors to sovereign governments are prepared to get back less than they have loaned out in the first place when their bonds mature.
On the spending side, Minister McGrath said that in "an extraordinary" 2020 total gross expenditure of €85.3bn was almost €18bn higher than in 2019. Around €5bn was paid out in pandemic unemployment payments in the year and over €4bn paid out in the two wage-subsidy schemes.
Additional health spending brought the total health budget to almost €21bn, and business grants, commercial rate waivers, additional spending on education and transport companies accounted for the balance of the Covid-19 spending.