Up to 400,000 households better off due to supports, ESRI says

Donohoe warns of future constraints on Covid-19 borrowings

Ireland will at some point face a budget constraint in dealing with the Covid-19 crisis, Minister for Finance Paschal Donohoe has warned. Photograph: Leon Farrell/Photocall Ireland/PA

Ireland will at some point face a budget constraint in dealing with the Covid-19 crisis, Minister for Finance Paschal Donohoe has warned. Photograph: Leon Farrell/Photocall Ireland/PA

 

More than 400,000 households will be left with more income as a result of the Government income and wage supports and other temporary payments, according to an Economic and Social Research Institute (ESRI) analysis.

Speaking at an online seminar organised by the Geary Institute at UCD on Friday, Dr Barra Roantree of the ESRI said that this was largely due to retirees gaining from the extension to the fuel allowance, which was extended for four weeks until May 8th.

In addition, 120,000 families , in low-paid jobs and in many cases working part time, will be better off due to the €350 a week pandemic unemployment payment than when they were at work. Gains are are less than 5 per cent in most cases, though a minority benefit by more.

Supports

The Government’s response on wage and income supports had been “swift and strong”, Dr Roantree said, and had significantly reduced the number of families losing 20 per cent or more of their income to about 280,000, compared with 400,000 if the new regime had not been introduced. Still, more than 150,000 will have lost between 20 per cent and 40 per cent of their incomes and smaller numbers are suffering even heavier losses.

Policy may now need to be adjusted, Dr Roantree said, if the shutdown is prolonged or there are intermittent closures and reopenings. It was important to design a scheme which allows people to move in and out of work, he said, possibly allowing them to retain a portion of the pandemic unemployment payment for a period after they return to work.

Now was the time to think about better targeting of the supports, he said, and also to consider how to pay for it in the long run. If there were demands for higher spending, post-Covid-19 taxes were likely to rise, he said, and a new commission on taxation might be a way to seek consensus on this.

Addressing the same seminar, the Minister for Finance Paschal Donohoe said that the State would at some point face a budget constraint in dealing with the Covid-19 crisis. He said that the situation on financial markets could change quickly and that the Government needed to be careful to retain the confidence of lenders.

Mr Donohoe’s comments follow statements he made in the Dáil on Thursday in which he said that the large budget deficit now emerging would have to be closed in the years ahead and that difficult decisions were ahead for the next government.

Deficit

Earlier this week the Department of Finance estimated that the deficit could rise to 7.4 per cent of GDP this year, or possibly as high as 10 per cent if the easing of restrictions was delayed and large parts of the economy had to remain closed.

Mr Donohoe said that “at some point in dealing with this, a budget constraint will re-emerge again”. The financial markets were the most likely trigger for this, he said, rather than any constraint from European Union budget rules, which have been loosened for now and any tightening could emerge “potentially at speed”.

Ireland had to ensure that all it was doing ensured that the country remained “on the right side of the budget constraint” – in other words, that the markets continued to have confidence in Ireland’s financial management, even if doubts were emerging about other countries.