Irish budget deficit set to hit 6% of GDP this year - finance minister

By Padraic Halpin

DUBLIN (Reuters) - Ireland's budget deficit is set to hit 6.1% of gross domestic product this year, Finance Minister Paschal Donohoe said on Friday, a narrower than forecast shortfall likely to give him room for more generous measures in Tuesday's budget.

The government will look to support those hit hardest by COVID-19 restrictions in the budget for 2021, helped by state tax revenues having held up much better than expected and Ireland's big export sector limiting the economic damage.

The finance ministry estimated early in the pandemic that a big fall in tax receipts and a huge increase in spending could lead to a deficit of 23 to 30 billion euros or between 7.4% to 10% of GDP.

Donohoe said the deficit would reach 21 billion euros, provided current COVID-19 restrictions were not tightened. A no-policy-change estimated deficit of 14 billion euros or 4% of GDP for 2021 will be updated next week when the government announces its budget stimulus measures.

"I want to emphasise that these figures are subject to an unprecedented degree of uncertainty with potential further change within 2020 and clearly the potential for significant change in 2021," Donohoe told a news conference.

Next week's budget figures will include a scenario outlining the impact of tougher restrictions to contain the novel coronavirus, he said. The government rejected a recommendation by its health chiefs to enter a second national lockdown on Monday.

In updated forecasts on Friday, Donohoe's department expects to collect 18% more income tax than when they revised them down sharply in April, keeping the year-on-year decline in the overall tax take to 4% versus the 16% initially feared.

Bucking the trend in most tax categories, corporate receipts are forecast to jump by 14% year-on-year to hit a record 12.4 billion euros and increase another 3% next year when the overall tax take will rise back above 2019 levels.

Prime Minister Micheal Martin has said the government is projecting a similar budget shortfall next year to this year's 21 billion euros, indicating that ministers may announce a budget package of up to 6.5 billion euros next week.

(Reporting by Padraic Halpin; editing by John Stonestreet and Grant McCool)