Exchequer deficit passes €7.4bn

NEW Exchequer figures show the deficit in the public finances was €7.4billion at the end of July.

This is a startling turnaround from a surplus of €896million at the same period last year.

However, the economic situation following the onset of the Covid-19 pandemic isn’t as bad as had been envisaged, according to KBC.

Its chief economist Austin Hughes said: ‘Exchequer returns for June hint that the damage, both to the Irish economy and the public finances at least in terms of the initial impacts of the coronavirus, could be less than widely feared.’

However, he added that the risk of a significant shortfall in activity levels once the economy fully reopens would require an ‘early and aggressive fiscal stimulus in coming weeks’.

Finance Minister Paschal Donohoe said expenditure now stands at €38billion, which is an increase of almost 30% compared to the same point last year.

The rise in expenditure reflects increased departmental spending in response to the Covid-19 pandemic.

Restrictions on businesses over the past few months also saw a huge impact on VAT receipts, a sharp fall of €2.2billion – equating to a 23% decline compared to the same period last year.

Funding for hospitals and PPE, as well as the Pandemic Unemployment Payment and Wage Subsidy Scheme, were the main focus areas of spending, Minister Donohoe said.

Total tax receipts are down 2.5% compared to a year ago.

Giving further hope on the figures, Mr Hughes said: ‘Importantly, the mid-year Exchequer returns suggest that this may prove notably less costly in terms of the eventual trajectory of public deficits and debt. While the first half of 2020 has seen a substantial deterioration in the public finances, the nature and extent of this weakening is notably different and consequently less threatening to that which emerged in 2008.’