General government recorded a deficit of €10.2 billion (5.8% of quarterly GDP) in the first half of 2020 (Table 1). In March, in response to the Covid-19 pandemic, the Government introduced measures to increase the capacity of the health sector and provide supports to businesses and households. These measures were in place for the duration of the second quarter. As a result, there was a direct impact on the level of expenditure (up €6.2 billion compared with Q2 2019) while revenue has declined, linked to both the measures and restrictions that were put in place.

In the first six months of 2020, government revenue of €38.3 billion was 6.7 per cent lower than the same period of 2019. At aggregate level tax revenue was down 6.0 per cent in first half of the year. Underlying this decline, indirect taxes were down 23.5 per cent, predominantly due to reduced VAT receipts, with direct taxes (including corporation tax and income tax) up 8.7 per cent. Other areas of revenue were also down such as social contributions (lower levels of PRSI receipts), sale of goods and services (reduced receipts across health, transport and local government) and investment income (in particular due to the ECB recommendation to all euro-area banks to not pay dividends).

Expenditure in the first half of the year is up significantly reflecting the supports put in place by Government. Subsidies and social transfers increased by €4.7 billion in the first half of the year. The Government’s Temporary Wage Subsidy Scheme is included in the former while the Pandemic Unemployment Payment is included in the latter. Intermediate consumption increased by €0.7 billion, mostly related to increased spending in the health sector, and current transfers are up €0.6 billion, including the Restart Grant. The combined impact is government expenditure of €48.5 billion in the first 6 months of 2020. See background notes for further details of the Covid-19 measures.

Highest level of general government debt at €226 billion

With increased levels of borrowing required to support the fiscal impact and response to Covid-19, gross general government debt has exceeded the peak of €218 billion in third quarter of 2013. At the end of 2019 the debt to GDP ratio of 57.4 per cent was below the Stability and Growth Pact limit of 60 per cent. Since then, the level of debt has increased by €22 billion with the ratio at 62.7 per cent of GDP at the end of the second quarter.

The rise in the debt ratio is due to the increased issuance of debt : €14 billion of short-term and €7.7 billion of long-term debt securities.

With an increase of €17.9 billion in EDP debt instrument assets, net general government debt has increased by €4.1 billion since the end of 2019. The increase in assets is due entirely to a rise in currency and deposits which will be used to finance the Exchequer borrowing requirement and the redemption of debt maturing later in the year.

The market value of Equity and Investment Fund Share assets (AF.5, Table 6) fell by €710 million during the second quarter of 2020. This drop is explained by two separate and partly offsetting movements in the period. The State ran down its holdings in this asset class by €1.2 billion, largely as a result of a withdrawal of equity from the Central Bank. In addition, there were holding gains in equity and pooled fund investments of €443m, which included a rise in the market value of shares held in Irish banks (Tables 5 and 6).