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Exclusive: Irish budget deficit could top 10% of GDP – Finance Minister

imageEconomic Indicators7 hours ago (May 21, 2020 12:00PM ET)

DUBLIN (Reuters) – Ireland could post a wider budget deficit this year than its worst-case scenario of 10% of GDP, even if it fully succeeds in reopening the economy, Finance Minister Paschal Donohoe told Reuters on Thursday.

The government has committed more than 13 billion euros so far to help firms, workers and the health service cope with the coronavirus pandemic, turning a budget surplus in 2019 into an estimated deficit of at least 7.4% of gross domestic product.

Donohoe told parliament on Wednesday the state was already approaching the upper end of his department’s forecast range – 30 billion euros or 10% of GDP.

“If we are completely successful in implementing our plan, it definitely reduces the chances of us going beyond the 30 billion threshold, but there is still risk there,” Donohoe said in a telephone interview from the spare room in his Dublin home where he works when he can in line with public health advice.

“What I would be particularly aware of is what happens with the disease in markets into which we sell goods and services.”

Ireland’s record budget deficit was an eye-watering 32% in 2010, largely due to a 30 billion euro bank rescue. The underlying deficit was estimated to be 12% at the time.

Donohoe said it is very possible the number of firms on the state’s wage subsidy scheme will keep rising, including dormant ones that may use it to reopen. The number of subsidised workers would only likely surpass those claiming a new jobless payment by stage four or five of the reopening plan, he added.

The state is supporting half of the labour force, 585,000 of which are on the jobless scheme for those who lost work due to coronavirus disruption and 473,500 claiming wage subsidy. Phase four of Ireland’s conservative reopening is scheduled for July 20, with the fifth and final phase on Aug. 10.

With hotels and pubs only due to reopen in those phases, the hospitality industry is looking for further aid. Donohoe, who has previously singled out the sector for potential targeted assistance, said he wants to be clear on when and how they can open up before deciding on what may be needed.

Another threat to future Irish tax revenues – a rewriting of international corporate tax rules – is currently being debated by the members of the Organisation for Economic Cooperation and Development (OECD).

Donohoe said he believed it is possible OECD member states will reach an agreement by a year-end target, a preferred option for Ireland as the prospect of an EU digital tax “would re-emerge and re-emerge quickly” if the OECD fail, Donohoe said.

Ireland sees a standalone EU tax on large internet firms as a bigger threat to its decades-long, low corporate tax model that has attracted over 250,000 multinational jobs.

Currently part of a caretaker government following a Feb. 8 election, Donohoe is also confident negotiations between his Fine Gael party, Fianna Fail and the Greens will yield a programme for government as soon as the end of the month.

“I think we will have an agreement,” he said.

Exclusive: Irish budget deficit could top 10% of GDP – Finance Minister

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