Ireland sees budget deficit narrowing to 5.5pc in 2021

DUBLIN: The Irish government expects to post a budget deficit of 4.5% to 5.5% of GDP next year, down from an estimate of around 10% this year, but budget day measures could push that higher, Finance Minister Paschal Donohoe said on Wednesday.

That equates to cash borrowing for 2021 in the region of 15-19 billion euros ($17.7-22.5 billion), down from Donohoe's current estimate of borrowing "in the upper range" of a 25-30 billion euros forecast for this year.

Two years of budget surpluses turned into a deep deficit this year due to 24.5 billion euros spent to date to deal with the COVID-19 pandemic, much of it on wage support.

Donohoe said his 2021 estimates were based on the assumption that the government would be dealing with the consequences of COVID-19 for most of that year.

The budget, which is to be announced on Oct. 13, will also be based on the assumption of Britain ending its European Union exit transition period in a disorderly manner.

"Both of these of course highlight to all of us the very high level of uncertainty that the economy is facing at the moment," Donohoe told journalists at a briefing.

But he said the government would be careful to ensure that the overall deficit is "in line with that of our European neighbours".

Irish Central Bank Governor Gabriel Makhlouf, said on Wednesday in an annual pre-budget letter to the minister of finance, he supported the government's efforts to boost the productive capacity of the economy and build resilience.

But he added that it is important for the government "to provide a clear, credible and time-bound return to much lower and sustainable deficit and debt positions."

Donohoe said the government plans to keep income tax broadly stable with "no broad-based income tax increases."

Budget spending priorities include health, housing and climate change, with capital expenditure expected to be around 9 billion euros, he said.