Strong 2020 tax take reins in Ireland's budget deficit

By Conor Humphries

DUBLIN (Reuters) - Ireland ran a lower than expected 2020 budget deficit of 5.5% of gross domestic product as corporate tax income surged and income tax fell just 1% during the COVID-19 pandemic, Finance Minister Paschal Donohoe said on Tuesday, citing provisional data.

He also voiced confidence that the government had enough firepower in its 2021 budget to deal with a recent surge in COVID-19 cases, saying the fact Britain had secured a trade deal with the European Union had freed up extra funds.

Donohoe's department forecast during the first lockdown of the economy in April that state revenues would fall 16% this year, but they dropped only 3.6% year-on-year.

That was largely due to corporate tax, mainly sourced from Ireland's large foreign multinational sector, which has been hurt far less by the restrictions and rose by 945 million euros, or 9%.

Income tax receipts fell just 1% thanks to the fact that the people most impacted by COVID-19 pay a relatively small proportion of the tax base, the finance department said.

Value-added tax, which more broadly mirrors the domestic economy, was down 18%.

As a result, the government said the budget deficit came in at an estimated 5.5%, below a forecast of 6.5% it made two months ago.

"Although we once again enter a difficult period of tough but necessary restrictions, today’s figures point to some positive underlying trends in the economy," Donohoe said in a statement.

Donohoe warned, however, that corporate tax take, which has climbed steadily in recent years, would "begin to decline across the coming period".

While Ireland reopened much of its economy in early December, most shops and the hospitality sector were shut down for the third time before the end of the month after a huge surge in COVID-19 cases.

Public Expenditure Minister Michael McGrath told a press briefing that the current budget provided for exceptional spending of around 12 billion euros "which gives us the firepower to support the economy over the course of 2021".

(Reporting by Conor Humphries; Editing by Kevin Liffey and Ed Osmond)