Subsidies may distort jobs market - Lenihan

 

MINISTER FOR Finance Brian Lenihan has signalled that the Government’s proposed new €250 million subsidy scheme to protect jobs which are at risk could lead to “huge competitive distortions” in the market if not designed carefully.

He said one of the difficulties involved in investing up to €1 billion in such a scheme, as sought by the trade unions, would be that it could lead to job displacement.

“Those who do not get the subsidies will find their businesses subject to unfair competition because the State is paying their rivals’ employee costs,” he said yesterday on RTÉ’s Morning Ireland.

However, the Government’s own document issued to the social partners on Tuesday says that an allocation of up to €1 billion to the job agenda was achievable “subject to the assessment of the effectiveness of the measures”.

Mr Lenihan in his interview said the Government’s assessment was the only amount it could safely spend in a targeted way at this stage was about €250 million.

“Were you to go beyond that and simply lash out money as they advocate, you could distort production and enterprises who do not get the subsidies as against those who do,” he said.

The Minister suggested that the Government would have to take a cautious stance. “If you are paying people to keep their jobs instead of taking social welfare, clearly then you could set up huge competitive distortion between different businesses,” he said.

He also warned that potentially some businesses could take the subsidies instead of dealing with their own structural problems.

Unions have said that after they raised objections about initial Government proposals to limit investment in the scheme to €250 million at social partnership talks on Tuesday, Taoiseach Brian Cowen had told them that ultimately €1 billion was achievable for the jobs agenda, provided the measures proved to be effective.

The Government’s draft proposals for national recovery were subsequently re-written by Government officials to include potential of a €1 billion investment, but no timescale for this has been set out.

In response to queries from The Irish Times yesterday, the Department of the Taoiseach said it would be designed in a way to avoid the risks of deadweight and displacement, and which would allow the labour market to make the adjustments necessary to underpin economic recovery.

It described the €250 million budget as “an initial allocation” and said it could be adapted. It also said the scheme was intended to operate under the terms of the European Commission’s existing temporary aid scheme for Ireland.

The department said the details of the scheme were being finalised and “would take account of any further discussions with the social partners”. It said that operational arrangements would be announced at a later date.

Meanwhile, the Government bowed to pressure from the Opposition and agreed to a Dáil debate next Friday on the IMF and OECD reports on the economy.

After consulting the Opposition whips, the Government chief whip Pat Carey announced that the debate would take place until 9pm next Friday.

“The Government welcomes the opportunity to debate these reports, particularly the IMF report, which broadly endorses the Government’s actions to deal with the current economic challenges. It is ironic that many of the measures now commended are the same measures which the Opposition have opposed blindly,” said Mr Carey.