Donohoe: Ireland will post budget deficit in 2022 despite recovery
Finance Minster Paschal Donohoe and Public Expenditure Minister Michael McGrath at a press conference on the publication of first-quarter exchequer returns at the Department of Finance on Wednesday. Picture: Gareth Chaney/ Collins
Ireland will post another budget deficit this year despite a €4.3bn improvement in the State’s finances in the first three months, compared to the same period in 2021.
Confirming the likelihood of a deficit, Finance Minister Paschal Donohoe said the improved exchequer balance was driven by strong growth in tax revenue, with tax receipts of €17.2bn in the first quarter, up €4.2bn, or 31%.
Despite the improvement, he ruled out the chances of Ireland delivering a balanced budget.
The bounce is distorted by the impact of stringent level 5 restrictions that were in place in the first quarter of last year, he said.
Total gross voted expenditure to end-March amounted to €18.9bn, €0.6bn, or 3%, below the same period in 2021.
This is driven by a decline in expenditure in the Department of Social Protection due to the impact of Covid restrictions in early 2021 and the resulting increased expenditure on supports for people and businesses, officials said.
On a 12-month rolling basis — a better indicator of the trend — the exchequer recorded a deficit of €3bn.
The quicker-than-expected bounce back in consumer spending and employment has given a lift to Government tax receipts, according to the latest exchequer returns.
Department of Finance chief economist John McCarthy did, however, issue a caveat on the numbers, saying the early months of 2021 were distorted by a number of factors, “flattering the year-on-year comparison”.
The figures show VAT — a decent indicator of consumer spending in the economy — generated €5.85bn during the first quarter of the year.
This was 30% more than in the same period of 2021, while income tax generated €6.8bn, up 16% on the same period last year.
Corporation tax delivered just under €1.9bn, which was 224% up on last year, but this reflected an earlier-than-expected payment that had been due in August.
Overall, the State’s finances generated a surprise budget surplus of €200m in March, compared to a deficit of €4.2bn recorded at the end of March 2021, an improvement of more than €4.3bn.
The increase reflects strong growth in tax revenues, the department said.
Spending for the three-month period amounted to €18.9bn, €600m, or 3%, below the same period last year. This was driven by a decline in expenditure in the Department of Social Protection due to the impact of Covid restrictions in early 2021 and increased spending on pandemic supports.
Commenting on the figures, Public Expenditure Minister Michael McGrath said in October’s budget, the Government set out a contingency fund of €4bn to support the economy and public services and allow the Government flexibility in responding the challenges related to the pandemic.
“Of that, €1.5bn of this is now committed, with effectively €2.5bn remaining. This contingency will provide us with some scope to meet the costs of the humanitarian provision in response to the crisis in Ukraine.
However, at least some of the remaining balance in the contingency fund will also be required to manage the impact of Covid across the year. The management of these dual challenges will be a key priority for public finances over the coming months,” he said.
