Public Policy Bulletin, 8 January 2021

Jan 08, 2021

 

In this week’s Public Policy news, read about Ireland’s latest Exchequer figures, a report on the economic and sectoral impact of the restrictions in Northern Ireland, and a landmark EU-China investment agreement.

Department of Finance figures show Exchequer deficit and expenditure increase

Figures released this week by Ireland’s Department of Finance have shown the extent of the COVID-19 pandemic on the nation’s financing with an Exchequer deficit of €12.3 billion recorded to the end of December 2020.  This compared to a surplus of more than €647 million in the same period last year.

As expected, government expenditure increased considerably this year compared to 2019, particularly in the areas of health and social protection, with net expenditure reaching €67.8 billion. This represents a 25 percent (€13.7 billion) increase on last year’s expenditure.

Receipts from tax were down €2.1 billion, or 3.9 percent compared to 2019 figures, although the reduction in income tax was less than anticipated, due to strong PAYE and self-employed returns.

VAT receipts were €2.7 billion (18 percent) less than in 2019, a 1 percent reduction that caused by the impacts on consumer spending – particularly on services – by public health restrictions.

Only corporation tax receipts were up on last year, by nearly 9 percent, amounting to €945 million reflecting strong performance in sectors such as pharma, ICT and financial services despite difficult economic circumstances.

Report published on economic and sectoral impact of Northern Ireland’s autumn restrictions

Northern Ireland’s Department for the Economy has published research carried out to analyse the economic and sectoral impact of the eight weeks of restrictions in autumn 2020. The report quantified the economic decline, caused by the public health restrictions which began in late March 2020, and the subsequent recovery during the summer months as local businesses reopened.

The report estimates that due to the spring lockdown, output in the economy reduced by 25 percent with estimated consequent losses of around £4bn to £5bn across 2020. Despite a strong rebound in in Q3 of 2020, the research found that while the rebound was strong, the economy had not fully returned to pre-pandemic levels before the December restrictions were put in place.

A new six-week lockdown took effect in Northern Ireland on 26 December, with further measures agreed on 5 January.

EU and China reach agreement on major investment deal

This week the EU and China concluded, in principle, negotiations for a Comprehensive Agreement on Investment.

China and the EU are both ranked as each other’s second-largest trading partner (behind the US), with two-way goods commerce valued at more than €1bn a day. This agreement aims to create a better balance in their trade relationship and remove barriers to investment in China, such as some joint-venture requirements, caps on foreign ownership in certain industries, and the forced transfer of technology from foreign companies. It will give European companies greater access to Chinese markets, particularly to the manufacturing sector, but also to construction, advertising, air transport and telecoms sectors. The deal is expected to give China access to a small part of the European renewable energy sector on a reciprocal basis, responding to China's demands for access to the EU’s energy market.

The agreement follows nearly seven years of negotiations, and needs to be ratified by the European parliament, a process that may not begin until the second half of 2021.

Read all our updates on our Public Policy web centre