The Government's planned stimulus programme ,which will be announced later this month, must have an immediate effect on the economy as it grapples with the Covid-19 crisis, the Minister for Finance Paschal Donohoe has said.
But he has cautioned that acceding to all demands from interest groups would more than wipe out the entire tax take for 2020.
The Department of Finance forecast in April that tax revenue would slump by 16.4 per cent this year to €49.6 billion, with the budget deficit amounting to 7.5 per cent of national income, or €23 billion. Just a month later, Mr Donohoe said the deficit could amount to €30 billion for the full year.
“Each day we are hearing many different parts of our economy make the case for additional support. I absolutely understand those cases,” Mr Donohoe told reporters at a briefing on Nama’s annual results on Wednesday.
“If I was to meet every single demand that is being placed on the State for additional money, and additional support – that is all for additional borrowing – in aggregate, the sum total … could easily exceed the amount of tax that we are going to collect in 2020. We need to be aware of that as we move through decisions that are approaching.”
The Minister said a “guiding principle” is that decisions taken to stimulate the economy must “genuinely have an effect in 2020”.
Mr Donohoe said the package, a priority for the new Government, will focus on the borrowing needs of small- to medium-sized enterprises (SMEs). SMEs were promised a €2 billion loan guarantee scheme in early May but enabling legislation has yet to be passed.
The Minister said he was looking at various options “on how a credit guarantee can be even more effective”, though he signalled his continued opposition to a 100 per cent guarantee plan. He wants banks providing the loans to “have a stake in ensuring that these are successful loans”.
VAT
Mr Donohoe also said he was looking at VAT as a tax policy to see if it can “play a role” in a recovery plan.
He noted that the argument for adjusting VAT is to increase business in sectors of the economy, such as in restaurants or hotels, “but that part of our economy at the moment is opening up very carefully”, with businesses operating under strict social-distancing guidelines.
“That’s going to be an important factor in any decisions that I make in terms of supporting that part of the economy.”
Meanwhile, Mr Donohoe added his voice to those calling on Irish residents to holiday in the State, as the Government and chief medical officer Dr Tony Holohan continue to advise against non-essential travel.
"Any family that wants to spend all or part of their holiday here in Ireland will have a great holiday," he said.
The Government has committed to finalising a roadmap for safe overseas travel "very shortly", the assistant general secretary at the Department of Taoiseach, Liz Canavan, said on Wednesday.
