Dark economic clouds foreshadow the storm yet to come

When government pandemic supports are eventually removed, some businesses will go

Global investment flows are likely to be significantly curtailed in 2021 because of the ongoing impact of the pandemic. Photograph: Nick Bradshaw

Global investment flows are likely to be significantly curtailed in 2021 because of the ongoing impact of the pandemic. Photograph: Nick Bradshaw

 

This week has brought a slew of economic data and indicators that don’t paint a pretty picture.

On Tuesday the exchequer figures showed that the pandemic had punched a €21 billion hole in the public finances. Remarkably (given that the jobless rate is running at 20.4 per cent) income tax receipts were down only 1 per cent.

Fortunately, we are able to borrow at negative rates from bond investors – the National Treasury Management Agency raised €5.5 billion this week – to help keep the show on the road, but the tab will have to be picked up by future generations.

In its review of 2020, Revenue illustrated the impact of Covid-19 on Irish businesses and their workers.

The temporary wage subsidy scheme provided more than €2.8 billion in support to 66,600 employers and 664,500 employees between March and August.

This was replaced by the employment wage subsidy scheme, with €1.4 billion paid to 39,800 employers in respect of 443,100 employees.

The Covid restrictions support scheme, introduced in the budget to support businesses significantly affected by the lockdown restrictions, has seen €146 million paid out to 16,600 companies.

And 70,000 businesses availed of the debt warehousing scheme, which allows Revenue to park VAT and payroll tax debt arising from the Covid restrictions. Some €1.9 billion of tax debt was warehoused last year, a cost that will have to be met by those businesses down the road.

Perhaps more importantly, given that we are a small open economy heavily reliant on exports, was the warning that global investment flows are likely to be significantly curtailed in 2021 because of the ongoing impact of the pandemic and having to fight for “a much smaller pool” of activity. IDA chief executive Martin Shanahan outlined how the full impact of this was still to play out.

Thankfully, there is light at the end of the tunnel with the rollout of vaccines globally. Yet, in economic terms, it’s hard not to feel that this period is merely the calm before the storm and that once the various government supports begin to be removed, many businesses simply won’t be able to survive.

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