Source: Department of Finance
In Budget 2021, the Department of Finance targeted a deficit of €20.5bn (5.7% of GDP) in 2021. Based on the first eight months of the year and the stronger than expected growth, the deficit is more likely to come in at less than €17bn. While such an outturn would provide some comfort, it would still represent a significant level of borrowing.
Source: Department of Finance, Summer Economic Statement, 14 July 2021
The prospects for economic recovery in the second half of 2021 and into 2022 are positive. The economy is now being steadily re-opened and economic activity is rebounding strongly. However, from a fiscal perspective, the legacy of government debt in the aftermath of the pandemic will have a significant influence on fiscal policy over the coming budgets. In addition, for those businesses most adversely affected by the Covid-19 restrictions and who are left with a significant debt legacy, it will take some time for full business recovery, and continued State support will be required.
Clearly, the fiscal parameters set out in the Summer Economic Statement suggest that the package of measures will be limited. There will be little scope for any meaningful tax reductions, apart from some indexation of bands and allowances, and spending will have to be brought back under control. The key issues that should guide Budget 2022 include:
As is always the case, Budget 2022 will contain many small measures that will have very limited impact on the majority of citizens. It is important that anti-business measures are avoided in the current environment of post-Covid uncertainty and volatility.
Jim Power will be guest speaker at Crowe’s upcoming Budget Briefing webinar, which will be held on Wednesday 13 October from 10.00-11.00am. If you would like to join this webinar, please contact [email protected] to register your interest.
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