Public Policy Bulletin, 6 April 2020

Apr 06, 2020

In this week’s bulletin, the impact of COVID-19 crisis on public finances was highlighted for the first time by the 2020 Q1 Exchequer Returns, published last week by the Department of Finance. In addition to this, the Central Bank of Ireland published its second Quarterly Bulletin of 2020, which described the COVID-19 economic shock is fundamentally different in nature and scope from anything previously witnessed.

The impact of COVID-19 crisis on public finances was highlighted for the first time by the 2020 Q1 Exchequer Returns, published on Thursday 2 April 2020. Speaking at a press conference yesterday, Minister Paschal Donohoe predicted that tax revenues will decline steeply over the coming months and expenditure will rise, with the Government putting in place significant resources to help fight the spread of COVID-19.

The resulting large fiscal deficit is expected to be somewhat cushioned by the economy’s position of relative strength – a budget surplus, cash reserves and significant progress in lowering the national debt.

The Government will also be making these income supports available to a larger number of people on the live register in receipt of payments. This was confirmed by the Central Statistics Office (CSO) on 2 April 2020 to be over 500,000. Minister Donohoe expects these income supports will ‘cushion the economic shock’.

In his address, the Minister stressed that the steep fall in economic activity is not due to imbalances such as credit growth; but is a casualty of the COVID-19 outbreak. He also added that the Government is working to ensure that there will be minimum reduction to productive capacity, so that firms and workers can resume economic activity as soon as possible.

Key points:

  • An Exchequer deficit of €2,535 million was recorded to end-March 2020. This compares to a deficit of €966 million in Q1 2019.
  • Reported tax income was under €13 billion in Quarter 1 2020.
  • Spending was€1.1 billion ahead of predictions – related to health and social protection
  • Exchequer deficit of €2.5 billion reported in 2020, compared to surplus of €1.6 billion in 2019  

 

 

End-March 2020

Difference

Primary reason

Exchequer Deficit

€2.5 billion

€1.6 million year-on-year deterioration

Increases in voted current and capital expenditure

Tax Receipts

€3.7 billion

22.5% or €1 billion below the monthly target

Steep decline in VAT receipts

Tax Income

€13.9 billion

year-on-year growth of 1.1%, or €318 million

Strong performances in January and February compensated for the March shortfall

Total net expenditure

€13.6 billion

Increase of 13.5% or €1.6 billion on 2019; €959 million, or 7.6% ahead of profile

COVID-19 related spending.

 

 

For more updates on COVD-19 please visit our COVID-19 Hub for latest news.

 

Central Bank describes the economic shock created by Covid-19 as fundamentally different in from anything previously witnessed.

The Central Bank of Ireland yesterday published its second Quarterly Bulletin of 2020, which focused entirely on the impact of the Covid-19 pandemic. It described  the pandemic’s impact on the economy as a “severe economic shock, fundamentally different in nature and scope from types of shocks previously witnessed” and one which has resulted in the widespread shutdown of businesses and a rise in the numbers on the live register, with further job losses possible. Given the uncertainty of the situation, the Central Bank stated that it is not possible to produce a conventional forecast but is using judgement and analytical tools to estimate of the potential impact of the crisis.

Under certain assumptions it predicts that GDP could decline by 8.3 per cent in 2020, that unemployment could rise to approximately 25 per cent in the second quarter if  all those receiving Covid-19 related payments are counted as unemployed, and could remain in double figures by year end

The following action has been taken action to contain the economic effects of the pandemic and to protect consumers, households and businesses:

  • 7.3 per cent of euro area GDP has been provided in the new Pandemic Emergency Purchase Programme of €750 billion until the end of the year
  • The Central Bank has released the Countercyclical Capital Buffer from 1% to 0% which will further support households and businesses.
  • The Single Supervisory Mechanism - of which the Central Bank is part - has announced that banks can temporarily use some of the supervisory capital buffers that they have built up in recent years.
  • The Central Bank has also been working with financial services providers to help provide ‘breathing space’ for customers who find themselves in financial difficulty, through no fault of their own.

Mark Cassidy, Director of Economics and Statistics, said:

“[T]he near-term outlook for the economy is very unfavourable and … [t]he starting point for the recovery will depend on the depth and duration of the downturn, which is, as yet, unknown …  the hope is that forceful containment measures can shorten the period during which economic activity has come to a stop. When it emerges, the pace of recovery is likely to depend on factors such as the extent to which households and firms have been scarred by the downturn, the degree to which precautionary behaviour unwinds, the recovery in employment and incomes and, possibly also, the degree of stimulus in place to provide some impetus to recovery.” You can read more on the Central Bank’s COVID-19 Hub.

 

 

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