Sturdy Irish tax take to keep a lid on budget deficit

By Padraic Halpin and Conor Humphries

DUBLIN (Reuters) - Ireland will this year run a narrower budget deficit than the 30 billion euros (27.20 billion pounds) worst-case scenario it forecast early in the COVID-19 pandemic after collecting more tax than expected since then, its finance minister said.

Data on Friday showed Ireland continued to collect more tax than expected in September, beating forecasts for the fifth straight month to keep the year-on-year decline in the overall tax take to 3% so far in 2020.

The finance ministry forecast in April that state revenues would fall 16% this year due to pandemic disruption. But a strong start to the year, a better than expected income tax take, and a surge in corporate tax receipts meant revenues were little changed in the first six months.

"We're going to be running a very, very big deficit for the year. It is now going to be below the 30 billion euro that we indicated," Finance Minister Paschal Donohoe told a news conference.

A deficit of 30 billion euros equated to 10% of GDP when the economy was predicted to contract by 10.5%. The finance ministry this week bumped up that forecast to a drop of 2.5%.

Ireland took in 1.54 billion euros ($1.80 billion) in income tax in September compared with the 1.14 billion forecast. That was still down 7.7% year-on-year, as parts of the economy remain shut due to recently tightened restrictions and a cautious reopening plan.

The 2 billion euros in VAT returns last month were slightly ahead of expectations but down 14% year-on-year, while lower monthly corporate tax returns were twice what had been anticipated.

Ireland's large and less affected multinational sector has shielded the economy from the worst of the crisis.

Still, the unemployment rate is set to average almost 16% this year and stay above 10% in 2021, with an unprecedented level of supports for those both in and out of work pushing government spending up 24.9% year-on-year in the first nine months.

(Reporting by Padraic Halpin; Editing Mark Potter and John Stonestreet)