The economic support package announced by the Government is on a massive scale, with more than €300 million to be spent in each of the next 12 weeks, a total of almost €3.7 billion.
The prize is significant – helping the economy to restart when we hope that the worst of the crisis will be past, stopping companies going out of business and supporting the incomes of up to 800,000 people. The Government is doing what it has to do – and has moved quickly.
There is risk too, of course, because as of now nobody knows when the health emergency will ease and thus when the restrictions which are taken a heavy toll on business can start to be lifted. Despite this – and like most administrations across Europe– the Government here reckons it has no option but to go big. Minister for Finance Paschal Donohoe will worry that the cost of this could escalate further if the scheme has to be extended, but for now we just don’t know.
As well as supporting people’s incomes, the goal is to keep them “attached” to their employer if at all possible – in other words that they remain on the company books and are paid through the normal payroll. Coming up with this scheme was hugely complex because, unlike many other northern EU countries, we do not have a developed structure to top up incomes for short-term work and the like.
Inventing this from scratch over a few days means there will be some teething problems, but it does seem the right step to take. Fergal O’Brien, head of policy at employers' body Ibec, welcomed it as a comprehensive package to support companies and their employees and leave the economy as well positioned as possible when demand does start to return. The Irish Congress of Trade Unions also welcomed the scheme and – importantly – it also includes provision for the self-employed and those already made redundant due to the pandemic.
The income support structure means employers will continue to pay their employees and will recoup the agreed amounts from the Government, via the Revenue Commissioners, within a couple of days. To qualify they are being asked to show a 25 per cent hit to their revenues, not difficult for many who have closed their doors.
Many employees – and businesses owners – will also still be concerned about the outlook, worried about when they can reopen and under what conditions.
Many employees – and businesses owners – will also still be concerned about the outlook, worried about when they can reopen and under what conditions. The economy will not restart from the position it was a few weeks ago, before this hit. But at least the schemes announced give some certainty over the difficult weeks ahead for a significant period of three months.
Beyond that, everything depends on the state of the healthcare crisis at that stage. The measures taken to address it are, of necessity, closing many businesses at least temporarily. But the success of these public health measures is what will allow businesses, at least gradually, to reopen. The lifting of restrictions will be gradual and 2020 will see a significant fall in Irish GDP, with businesses reopening over the summer and some stabilisation moving into the autumn probably the best we can hope for.
Much, too, will depend on the international picture. Around half the jobs in Ireland depend on international demand and this will fall sharply too, at least for a period. Our big markets, the US, UK and EU, will all be hit hard.
We have still to see a full assessment of what Covid-19 will cost the exchequer, but the sums are probably already over €6 billion in extra spending. There will be more to come and there will also be a hit to tax revenues. Borrowing will go sharply into the red, probably to the tune of 5 per cent of GDP this year and possibly more if the crisis drags on.
The State can borrow to pay for this and, crucially, ECB intervention is keeping borrowing rates low, for now anyway. It also has significant cash balances to hand. But the outlook for the public finances is now completely transformed. When this is over, whoever is in government has a big job recalibrating all the plans for the years ahead and trying to come up with a plan to restart the economy and stimulate it.