Budget 2021 is 'next phase' of response to Covid-19

Paschal Donohoe will appear before the committee ahead of the budget, due in under two weeks
Budget 2021 is 'next phase' of response to Covid-19

Budget 2021 comes against an "exceptionally difficult" economic backdrop, says Minister for Finance, Paschal Donohoe TD. Picture: Gareth Chaney/Collins

A recovery fund will form a "key plank" of the Budget, the Finance Minister will tell TDs at a committee on budgetary oversight on Thursday.

Paschal Donohoe will appear before the committee ahead of the budget, due in under two weeks.

Mr Donohoe's opening statement will brief TDs on an "exceptionally difficult" economic backdrop, with both Covid-19 and Brexit posing unique problems.

"A key plank of Budget 2021 will be the recovery fund, as provided for in the Programme for Government. This will provide for targeted, time-bound counter-cyclical support – further helping to cushion the impact on people’s incomes and employment. At the same time, however, a key challenge in framing the budget is to find the appropriate balance between continued support for the economy and staying ‘within the pack’ of EU member states."

Mr Donohoe will tell TDs that GDP is expected to rise just 1.5%, showing that economic activity will not return to normal for some time. His statement adds the Budget represents the "next phase" of the government's response to Covid.

"We have never seen a challenge like this in modern times; but equally we have not seen a response like this either. Our job is to minimise the damage – economic and social – and to lay the foundations for recovery which will come."

Public Expenditure Minister Michael McGrath has spent weeks meeting cabinet colleagues to discuss departmental wishes for the budget.

However, government sources say the final shape of the budget will not be known until much closer to October 13, though Mr McGrath has hinted in the Dáil that the size of the investment for capital investment is not "set in stone" at €9bn.

The Parliamentary Budget Office, meanwhile, has issued its commentary ahead of the budget, warning that the economic outlook is "uncertain" and saying that Ireland continues to over rely on "a narrow tax base".

"Tax revenue has outperformed expectations since the onset of the pandemic and is holding up reasonably well on an annual basis.

"While the outperformance of corporation tax has helped to mitigate the fiscal impact of the pandemic, it serves as a reminder that this is a volatile and unpredictable source of Exchequer revenue. The tax base should be broadened to manage some of the risk it poses."

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