The effect of the covid 19 pandemic on consumption and indirect tax in ireland

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ESRI Budget Perspectives webinar series www.esri.ie
The effect of the Covid-19
pandemic on consumption and
indirect tax in Ireland
Budget Perspectives webinar
series
25/05/2020
AUTHORS:
Cathal Coffey
Karina Doorley
Conor O’Toole
Barra Roantree

www.esri.ie @ESRIDublin #ESRIevents #ESRIpublicationsESRI Budget Perspectives webinar series www.esri.ie2 26 May 2020
Overview of the paper
• Assess potential effects of COVID-19 pandemic on
household spending & indirect tax revenues
• Use Household Budget Survey (HBS) which contains info
on household characteristics, incomes & spending
• Model Three Scenarios
1. Baseline: ‘New-Normal’
2. Severe: ‘Second Wave’
3. Benign: ‘Vaccine’

Essentials almost 40% of total spending

... & even more for low income families
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
Lowest 2 3 4 Highest All
Shareofexpenditure
Quintile of equivalised disposable income
Essential Restricted Other
• Spending on essentials make up a larger share of the expenditure of lower income,
single and renting households than others.

Methodology

Overview
• Uprate HBS Data to 2019
• Split 2020 into different periods
• Generate a set of parameters for each period
• Scalars used to adjust spending on an item from “normal”
level to a new level
• Generate a new level of consumption expenditure for
each of our three scenarios
• Estimate indirect tax paid in each scenario using ITSim
• Tool developed by researchers at the ESRI in partnership
with officials at the Department of Finance

The Scenarios
• Phases - according to the Roadmap for Reopening.
• Despite containing some lockdown days, March is parameterised using
data pertaining to the entire month of March.
“New Normal” “Second Wave” “Vaccine”
Jan, Feb & March * Normal / March
April - May 17th Lockdown
18 May to 7th June Phase1
8th June 28 June Phase2
29 June to 19th July Phase3
20 July to 9th Aug Phase4
10th Aug - End Q3 Phase5
Q4 Ongoing physical and
social distancing to
end 2020
Second wave,
strict lockdown for
12 weeks
Normal Economic
Activity

Methodology - Parameters
For each item in the HBS, we map out a 2020 consumption path by generating a parameter
under each type of period.
Normal Consumption: Assumed to be equal to 2019 level
March: Parameterised by mapping the changes witnessed in the CSO retail sales indices & CBI
card spending data to spending categories. Other data sources used include Ryanair, the SIMI &
the RAI.
Lockdown & Phase 1 - 5: We restrict spending on items where providers were closed during the
lockdown. We then activate/gradually increase spending on items based on the Roadmap to
Reopening.
New-Normal: We reduce/increase spending in
categories likely to impacted by the
continuation social distancing.
For example, spending on disinfectants/detergents
remains elevated while spending on international air
travel remains reduced.

Results: Consumption

www.esri.ie @ESRIDublin #ESRIevents #ESRIpublicationsESRI Budget Perspectives webinar series26 May 202010
Simulate spending will fall by 12-20% in
2020 relative to 2019
-13
-20
-12
-25
-20
-15
-10
-5
0
New normal Second wave Vaccine
%changerelativeto2019

www.esri.ie @ESRIDublin #ESRIevents #ESRIpublicationsESRI Budget Perspectives webinar series26 May 202011
... with largest % declines in transport,
durables and clothing + footwear
-60 -50 -40 -30 -20 -10 0 10
Food
Drink and tobacco
Clothing and footwear
Light and fuel
Housing
Non-durables
Durables
Transport
Miscellaneous
%changerelativeto2019
Vaccine Second wave New normal

Results: Indirect Taxes

Indirect taxes to gradually recover but
remain below pre-pandemic level
0.00
20.00
40.00
60.00
80.00
100.00
120.00
Normal March Shutdown Phase 1 Phase 2 Phase 3 Phase 4 Phase 5 New
Normal
Averageindirecttaxperhousehold(€perweek)

… and will be significantly down for
the year altogether in any scenario
-20.5
-31.7
-18.7
-35
-30
-25
-20
-15
-10
-5
0
New Normal Second Wave Vaccine
%changerelativeto2019level

www.esri.ie @ESRIDublin #ESRIevents #ESRIpublicationsESRI Budget Perspectives webinar series www.esri.ie15
Results Snapshot
-13
-20
-12
-20.5
-31.7
-18.7
-35
-30
-25
-20
-15
-10
-5
0
New Normal Second Wave Vaccine
Fall in Aggregate Consumption 2019-2020 (%) Fall in indirect tax take 2019-2020 (%)
€ 3.9 bn
€6.7 bn
€4.3 bn

Conclusion

Conclusions (1/2)
• Spending on essentials makes up a larger share of total
for lower income, single & renting households
• May find it more difficult to weather income shock
• New government supports (PUP & TWSS) especially
important for these groups (Beirne et al., 2020)
• Particular attention should therefore be given to these
groups in design of any revised schemes

Conclusions (2/2)
• The main Results:
• New Normal: spending -13% & ind taxes -20.5%
• Second Wave: spending -20% & ind taxes -31.7%
• Vaccine: spending -12% & ind taxes -18.7%
• May be optimistic to assume Roadmap for
reopening is followed to the end of Q3 if viral
transmission increases before that…..

Q & A

The effect of the covid 19 pandemic on consumption and indirect tax in ireland

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