budget 2021: emerging economic and fiscal situation...13th october presentation of budget 2021 15 th...
TRANSCRIPT
Budget 2021: Emerging economic and fiscal situation
Presentation to Tax Strategy Group
John McCarthy, Chief Economist
10th September 2020
2 An Roinn Airgeadais | Department of Finance
Birds-eye view
• Economic fall-out from lockdown
• Post-lockdown developments
• The public finances
• Summary and conclusions
3 An Roinn Airgeadais | Department of Finance
Economic fallout from lockdown
4 An Roinn Airgeadais | Department of Finance
External developments: global symmetric shock
Record GDP fall in key trading partners Share of global economy in lockdown
Source: a) DoF and b) Macrobond
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
07/0
1
13/0
1
19/0
1
25/0
1
31/0
1
06/0
2
12/0
2
18/0
2
24/0
2
01/0
3
07/0
3
13/0
3
19/0
3
25/0
3
31/0
3
06/0
4
12/0
4
18/0
4
24/0
4
30/0
4
06/0
5
12/0
5
18/0
5
24/0
5
30/0
5
05/0
6
11/0
6
17/0
6
23/0
6
29/0
6
05/0
7
11/0
7
17/0
7
23/0
7
29/0
7
04/0
8
10/0
8
16/0
8
22/0
8
28/0
8
03/0
9
China
Italy
Japan
South Korea
Ireland
Portugal
Belgium
Spain
Saudi Arabia
Canada
Russia
Switzerland
Turkey
Rest of EU
Mexico
Brazil
India
Japan
China
Norway
Denmark
Germany
Austria
Sweden
France
Netherlands
Austria
Belgium
South Korea
UK
Spain
South Africa
Thailand
Ireland
Russia
-23%
-18%
-13%
-8%
-3%
2%
Q1/2
01
9
Q2/2
01
9
Q3/2
01
9
Q4/2
01
9
Q1/2
02
0
Q2/2
02
0
United States
Euro area
United Kingdom
- 9%
-20%
-12%
5 An Roinn Airgeadais | Department of Finance
Ireland: largest economic contraction on record
Surge in household savings, voluntary and involuntaryQ2: modified domestic demand = -16 per cent
-20
-15
-10
-5
0
5
10
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2014 2015 2016 2017 2018 2019 2020
C
G
B&C
Other modified investment
MDD
- 1,000
- 500
-
500
1,000
1,500
2,000
2,500
3,000
3,500
Jan-1
7
Mar-1
7
May-1
7
Jul-1
7
Sep-1
7
Nov-1
7
Jan-1
8
Mar-1
8
May-1
8
Jul-1
8
Sep-1
8
Nov-1
8
Jan-1
9
Mar-1
9
May-1
9
Jul-1
9
Sep-1
9
Nov-1
9
Jan-2
0
Mar-2
0
May-2
0
Jul-2
0
Monthly change in deposits at commercial banks
“excess” savings = c. €5-6 bn
[partly funding the fiscal deficit]
Quarterly fall in GDP = 6 per cent
“two-speed” economy : exports of MNCs
Source: a) CSO and b) Central Bank
6 An Roinn Airgeadais | Department of Finance
Fall-out in the labour market unprecedented
Unemployment rate = highest level ever [c. twice GFC rate]Change in employment levels (000’s y/y)
17.3% Dec 1985
4%June 2001
peak=16% Feb 2012
28.8% April 2020
16.7% July 2020
0
5
10
15
20
25
30
35
Jun
-83
Ap
r-8
4
Feb
-85
Dec
-85
Oct
-86
Au
g-8
7
Jun
-88
Ap
r-8
9
Feb
-90
Dec
-90
Oct
-91
Au
g-9
2
Jun
-93
Ap
r-9
4
Feb
-95
Dec
-95
Oct
-96
Au
g-9
7
Jun
-98
Ap
r-9
9
Feb
-00
Dec
-00
Oct
-01
Au
g-0
2
Jun
-03
Ap
r-0
4
Feb
-05
Dec
-05
Oct
-06
Au
g-0
7
Jun
-08
Ap
r-0
9
Feb
-10
Dec
-10
Oct
-11
Au
g-1
2
Jun
-13
Ap
r-1
4
Feb
-15
Dec
-15
Oct
-16
Au
g-1
7
Jun
-18
Ap
r-1
9
Feb
-20-600
-500
-400
-300
-200
-100
0
100
200
12Q
1
12Q
2
12Q
3
12Q
4
13Q
1
13Q
2
13Q
3
13Q
4
14Q
1
14Q
2
14Q
3
14Q
4
15Q
1
15 Q
2
15 Q
3
15 Q
4
16 Q
1
16 Q
2
16 Q
3
16 Q
4
17 Q
1
17 Q
2
17 Q
3
17 Q
4
18 Q
1
18 Q
2
18 Q
3
18 Q
4
19 Q
1
19 Q
2
19 Q
3
19 Q
4
20 Q
1
20 Q
2
includes for those on PUP
Source: a) CSO and b) CSO
7 An Roinn Airgeadais | Department of Finance
Post-lockdown economic developments
8 An Roinn Airgeadais | Department of Finance
Ultra-high frequency data confirm gradual pick-up in q3
Number of cars on Irish roads
Source: a) TII and b) Revolut
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
07
/02
/20
20
14
/02
/20
20
21
/02
/20
20
28
/02
/20
20
06
/03
/20
20
13
/03
/20
20
20
/03
/20
20
27
/03
/20
20
03
/04
/20
20
10
/04
/20
20
17
/04
/20
20
24
/04
/20
20
01
/05
/20
20
08
/05
/20
20
15
/05
/20
20
22
/05
/20
20
29
/05
/20
20
05
/06
/20
20
12
/06
/20
20
19
/06
/20
20
26
/06
/20
20
03
/07
/20
20
10
/07
/20
20
17
/07
/20
20
24
/07
/20
20
31
/07
/20
20
07
/08
/20
20
14
/08
/20
20
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
07/0
2/2
02
0
21/0
2/2
02
0
06/0
3/2
02
0
20/0
3/2
02
0
03/0
4/2
02
0
17/0
4/2
02
0
01/0
5/2
02
0
15/0
5/2
02
0
29/0
5/2
02
0
12/0
6/2
02
0
26/0
6/2
02
0
10/0
7/2
02
0
24/0
7/2
02
0
07/0
8/2
02
0
21/0
8/2
02
0
Schools Closephase 1 phase 2 phase 3
Payment transactions [‘Revolut’]
Body Level One
Body Level Two
Body Level Three
Body Level Four
Body Level Five
9 An Roinn Airgeadais | Department of Finance
Initial bounce-back during the summer
Unemployment / under-employment extremely highRetail sales [=goods] suggest release of pent-up demand
0
20
40
60
80
100
120
Jan-2
0
Fe
b-2
0
Mar-
20
Apr-
20
May-2
0
Jun-2
0
Jul-20
January
2020 =
100
Schools close
12th March
Full lockdown
27th March
Phase 1
18th May
Phase 2
8th June
Phase 3
29th June
….though purchase of services lower
-
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
23-M
ar
30-M
ar
06-A
pr
13-A
pr
20-A
pr
27-A
pr
04-M
ay
11-M
ay
18-M
ay
25-M
ay
01-J
un
08-J
un
15-J
un
22-J
un
29-J
un
06-J
ul
13-J
ul
20-J
ul
27-J
ul
03-A
ug
10-A
ug
17-A
ug
24-A
ug
31-A
ug
07-S
ep
Pandemic Unemployment Payment Live Register TWSS (currently in receipt)
Phase 2
June 8thPhase 3
June 29thPhase 1
May 18th
Total = c. 800 K
peak = 1.2m
PUP = 219 K
LR = 217 K
TWSS = 360 K
Source: a) CSO and b) DoF calculations
10 An Roinn Airgeadais | Department of Finance
Economic outlook
• For 2020:
: MNC sector has done most of ‘heavy lifting’ [imports a ‘shock-absorber’]
: severe hit in Q2, partial bounce-back in Q3, modest growth thereafter
: NX likely to positively contribute to growth, with negative contribution from MDD
• For 2021: key assumption = no vaccine
: continued modest growth throughout 2021
: EU-UK trade relationship?
- tariffs
- non-tariff barriers
- supply-chain disruption
• For 2022 onwards: scarring effects? [equilibrium unemployment / lower productivity]
: legacy effects? [public debt overhang / spillovers to banking sector / re-(near-)shoring / deglobalisation]
11 An Roinn Airgeadais | Department of Finance
Public Finances
Body Level One
Body Level Two
Body Level Three
Body Level Four
Body Level Five
12 An Roinn Airgeadais | Department of Finance
Fiscal position – must remain ‘in the pack’
• Outlook: (currently being revised)
- discretionary measures €24 billion = large by international standards
- deficit of up to €30 billion = -10% GDP (-17% of GNI*)
- part structural (un-related to economic cycle)
- debt of 125% of GNI*
- amongst the highest in the developed world
- rise further next year
- revenue base v. exposed to corporation tax receipts
• Debt will have to be re-financed in coming years- at a higher rate / cost
- market sentiment can change rapidly (eg. 2008 / 09)
- removal of ECB support in June next year
13 An Roinn Airgeadais | Department of Finance
Public debt – large and rising and high vs peers
Gross debt, per cent of GDP/GNI*, SPU forecast
40
50
60
70
80
90
100
110
120
130
2015
2016
2017
2018
2019
2020
2021
debt-to-GDP ratio
debt-to-GNI* ratio
projections
0
10,000
20,000
30,000
40,000
50,000
60,000
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
f
20
21
f
EU 25th to 75th (interquartile range)
Ireland
Debt-per-capita, IE relative to EU27 second and third quartiles. €
Source: a) CSO and b) DoF calculations
14 An Roinn Airgeadais | Department of Finance
Summary
• Economy in finely balanced position
- shock = disproportionate impact on labour-intensive service sectors
• Labour market has borne the brunt
- some firms / sectors no longer viable
- pace of technological change has accelerated (on-line shopping / payments)
• Budgetary policy must walk a fine line
- support economy
- ensure fiscal sustainability
• Disorderly Brexit will impose additional economic and fiscal costs
• Any loss of corporation taxation receipts would have serious consequences for sustainability
15 An Roinn Airgeadais | Department of Finance
Next steps
Date Event
20th September Finalisation of economic forecasts and transmission to IFAC
29th September Presentation of IFAC Council
2nd October Publication of q3 exchequer numbers
9th October Publication of White Paper
13th October Presentation of Budget 2021
15th October Submission of DBP to European Commission / Council
Q4 Publication and enactment of Finance Bill / Social Welfare Bill / etc.
16 An Roinn Airgeadais | Department of Finance
Disclaimerand other information:
The views expressed in this presentation are those of the presenter and do not necessarily reflect the views of the Department of Finance, the Minister
for Finance or the Government of Ireland.
Outturn data are sourced from a variety of sources including the Department of Finance, Central Statistics Office, European Commission (AMECO) and
CentralBank of Ireland.
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