Coronavirus stimulus package is a gamble on Ireland’s future
€7bn package is the largest government-sourced stimulus ever applied to Irish economy
Tánaiste Leo Varadkar, Taoiseach Micheál Martin and Minister for Climate Action Eamon Ryan at Dublin Castle, Thursday. Photograph: Julien Behal Photography/PA
Promising a tsunami of borrowed money to rejuvenate the State’s Covid-ravaged economy, Taoiseach Micheál Martin, flanked by Fine Gael’s Leo Varadkar and the Green Party’s Eamon Ryan, cited “unprecedented measures for unprecedented times”.
So far, Martin has not said exactly how much will be poured in this year, but it is clear that the €7 billion package – €5 billion in cash investments, grants, loans and tax cuts, plus €2 billion in loan guarantees – will shower the economy with money in a bid to save jobs and restart economic activity.
The package is over twice the size of the discretionary spending that might be announced on a typical budget day in recent years. It is the largest government-sourced stimulus ever applied to the Irish economy.
Politicians throwing money at problems is a tradition as old as politics. This time, politicians are throwing an enormous sum at an enormous problem. And they are in line with other governments. Borrow money, and spend it, quickly.
It is, too, a gamble on the future. Will a second wave of coronavirus come, and can it be contained? Will the economy respond to the stimulus and function in a way that lets the State fund itself again, without relying on massive borrowing.
The question – what if this doesn’t work? – will haunt the leaders in quieter moments. The gap this year between taxes and spending will be €30 billion in a State that usually costs €70 billion. Such spending and borrowing is not sustainable.
“Sure everyone’s a Keynesian now,” muttered one official on Thursday, reflecting on the general political consensus that borrowing and spending are now the keys to rescue. However, this is the easy bit of Keynesian economics.
People tend to be less enthusiastic about the other bit – running surpluses during times of strong economic growth, which means curbs on spending to come. However, lots of people will want to keep increasing public spending then, too.
Minister for Finance Paschal Donohoe, who spent his time fighting off demands from Government colleagues and opposition alike for big spending increases in recent years (with partial success), can now allow himself a wry smile.
What are the politics of all this? There are a couple of positives for the Government. The first is that after a number of shaky weeks, and the messy publication of the “green list” of countries earlier this week, it has produced its first substantial piece of work.
It was one that required detailed cross-Government work, compromises and agreements of a common agenda. Moreover, it has done so on a budgetary matter which will immediately begin having an effect on people’s lives.
The second is that while the announcement was fronted by three party leaders, much of the work in putting together this plan was done by Donohoe and his partner in the Department of Public Expenditure, Michael McGrath.
The two men, who worked closely together in the negotiations to form the Government, are becoming in many respects the engine room of the new administration. The next big thing for them is the budget in October, one that will probably augment the stimulus.
Budgets are one of the biggest things in a government’s year and can be internally divisive, but Thursday’s delivery suggests it will be carried off without too much fuss. By then, barring more accidents, the administration should have settled down into governing.
But ultimately whether this Government succeeds or fails in the long term depends not just on the measures it takes itself, but on the external environment that confronts it. Will there be a devastating second wave of Covid-19? Will the Government be able to continue borrowing to fund itself? These are the crucial questions and they are beyond any domestic fiat. The stimulus plan was undoubtedly a good step for the Government. But there are limits to what it can do.