How much will the Government have had to borrow this year to deal with the Covid-19 fallout? The likely answer is a lot – but a good deal less than feared at the height of the first lockdown.
Rarely have official forecasts for the deficit swung so much. It seems like another lifetime, but in the budget for this year, presented in October 2019 , Minister for Finance Paschal Donohoe had assumed a no-deal Brexit would push the figures from a modest surplus last year to a deficit of €2 billion this year, using the EU deficit measure.
A withdrawal agreement was signed between the EU and the UK , but then the Covid-19 shock hit in the first quarter of this year. By April, in the official update submitted to Brussels, the deficit forecast had jumped to €21 billion and, in classic Department of Finance language, we were told that a figure of up to €30 billion was " not unimaginable".
The remarkable resilience in taxes – led by corporation tax – means that the outcome will now be much better than these worst-case forecasts. When the figures are published early in January, the indications from the latest data are that the deficit will be in the €17 billion-€18 billion region. Presumably this will mean some change in the 2021 forecast of a €20.5 billion deficit.
Remember that the 2021 figures, including a modest estimate of GDP growth of 1.7 per cent, are based on no vaccine being generally available and on the second phase of the Brexit drama working out badly via no trade deal being reached between the EU and the UK. Now we know vaccines are on the way – but also that there will be substantial costs, with new restrictions imminent and a package being prepared for the hospitality sector.
The outcome of the Brexit talks remains in the balance – though a successful outcome would lead to a big increase in growth prospects and this would mean higher tax revenues. On the other hand, failure to reach a trade deal would lead to costly new supports being required for the farming, agribusiness and fisheries sectors, which would be worst hit. It’s all still to play for.
