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Donohoe on Budget 2021: No new income tax, USC or PRSI


The Government will not make any changes to income tax in next month’s Budget, Minister for Finance Paschal Donohoe has indicated.

With Covid-19 cases on the rise and the prospect of a no-deal Brexit looming, Mr Donohoe said major changes in taxation would be counter-productive at this stage.

There would be no change to income tax credits or bands, USC or PRSI, he said, but declined rule out changes in welfare rates. A scheduled €6 per tonne hike in carbon tax is also expected to go ahead.

Decisions will “prioritise management” of the Covid-19 pandemic and Brexit, Mr Donohoe said.

At a briefing yesterday outlining his budgetary strategy, he said Budget 2021 would be framed on the basis of a no-deal Brexit with bilateral trade between the EU and the UK reverting to World Trade Organisation terms.

He said the likelihood of a no-deal Brexit had heightened in recent days with the UK threatening to disregard certain elements of the withdrawal agreement and that the safe thing to do was to prepare for the consequences.

His comments come as new study warned that the shock to the Irish economy from a no-deal Brexit could be exacerbated by the Covid-19 crisis.

The research by the Economic and Social Research Institute and the Department of Finance found there was limited overlap between the sectors at risk from a hard Brexit and those most impacted by the pandemic.

A no-deal Brexit would therefore broaden the range of sectors experiencing a negative hit and magnify the shock to the economy as a whole, it said.

‘Exceptionally uncertain’

Separately the Irish Fiscal Advisory Council has called for a “substantial multi-year stimulus” to restore demand in the Irish economy.

In its pre-budget submission, it warned the outlook for the economy was “exceptionally uncertain” and said the Government should be prepared to provide further targeted stimulus to address the demand shortfall and support supply.

It said the Government should use the forthcoming budget to put in place a multi-year stimulus package, without specifying the required size of the stimulus.

Mr Donohoe said “normal budgetary adjustments” had to give way to the State’s response to the Covid-19 crisis but the package of measures to be announced next month would seek to maintain existing levels of public services.

He said the Government was expecting to run a deficit of 4.5-5.5 per cent of gross domestic product next year, which included substantial Covid-related expenditure.

“This equates to cash borrowing in the region of €15-€19 billion for next year,” he said, while noting additional policy decisions to be announced on Budget day would add to this.

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