Subscriber OnlyOpinion

As Ireland reopens, the Government faces a treacherous balancing act

Cutting the emergency Covid-19 supports presents a huge political challenge

Now for the complicated bit. The Government has faced unprecedented economic challenges during the Covid-19 crisis – and has met them with unprecedented measures.

The decisions have been enormous involving one of the toughest lockdown regimes in Europe and the spending of billions of euro. But in many ways the decisions which lie ahead are even more complex and politically challenging.

When to reopen the different bits of the economy is just the beginning; the starting gun of a debate with far-reaching implications. The really tricky bit is what happens afterwards and how the gradual withdrawal of the big support programmes is balanced with help for economic reopening.

The political problem is that there will be people and businesses left behind – the budgetary reality is that if some way is not found to wind down emergency spending over the next 18 months then the recently-published forecasts for the public finances will be rendered obsolete .


And this would mean no money to do all the other things the Government wants to do.

In terms of the reopening itself, it is worth noting that while there is a lot of deja vu about the jockeying for position between the Government and the National Public Health Emergency Team, the arrival of the vaccines has changed the question.

Last year the questions were about how could we live with the virus – not very successfully was the answer. This time the question is different – it is when are vaccines going to give enough protection to reopen. This changes the calculus. With outdoor activities reopening (we wonder why things like golf or walking on a beach more than 5km from your home were banned for so long) and the wider retail sector set to follow, the nub of the reopening debate will now be about hospitality.

With the percentage of the population covered by vaccines rising – and quickly, we hope – there isn’t much point fighting now over two or three weeks, say between early and late June, for a date to start the staycation season. Let’s see how trends go and what happens in the UK, which will be a good pointer on the balance of vaccinating and reopening. These sectors have been crippled by the lockdown, but unfortunately this cost has already been incurred. The risk assessment now looks forward, not back. Hospitality will be open for July, unless things go badly off track, but it could yet be a close enough finish.

And then, of course, hospitality will need a big programme of support, as will the other sectors hit by the pandemic. Here things get complicated for the Government and for the two Ministers at the centre of this, Paschal Donohoe in finance and Michael McGrath in public spending. The Government needs to start winding down the massive cost of the emergency supports, totally more than €15 billion to date when you tot up the main schemes – while still helping companies to reopen and rehire. The two Ministers have said there will be no “cliff-edge”withdrawal of supports, but some way is needed to wind them down over time.

This won't be easy. Central Bank figures indicate that as many as one in four SMEs could be in danger of insolvency on the basis of their finances just before the pandemic and then after it hit. The economic theory is that some firms now on Government life-support will not be viable after the pandemic and should be allowed fail. But in practice you can see the political trap here. Businesses will be failing because they were unlucky enough to be in a consumer-facing sector, not because they did anything wrong.

Designing supports to help only the ones likely to survive is also technically very complicated.

The first phase of these decisions needs to be taken soon, as the current supports, the Employment Wage Subsidy Scheme (EWSS) and Covid Restriction Support Scheme (CRSS) run out at the end of June. We might bet on some extension of the wage subsidy scheme, probably with supports levels being reduced over time. The CRSS, which has helped firms which had to remain closed, could well be remade as one to help the hospitality sector restart.

A big question will be how to handle the Pandemic Unemployment Payment (PUP), currently with 420,000 or so recipients. Numbers should drop sharply as reopening happens, but many will remain on the payment. How to handle those left behind – generally younger and often lower-paid people – will be a huge political decision. How do you balance the need to support people laid off due to a pandemic, with the impossibility of keeping a kind of two-tier unemployment support system going in the long term?

As well as cash support, there will be a need for much more active job market and retraining supports as part of helping those laid-off. The Central Bank has estimated that some 100,000 additional people might be left on the unemployment register when this is over. Given the huge numbers on the PUP and with their jobs supported by the wage subsidy, the sad thing is that would seem as good an outcome as we could hope for.

The flip side of the withdrawal of support is that the recent reasonably upbeat – in the circumstances – projections from the Department of Finance are based on the emergency pandemic supports being gradually withdrawn and completely gone by the end of next year. This, together with the resumption of growth, is forecast to bring the public finances slowly back towards balance by 2025, assuming no policy changes. Of course there will be some policy changes, but the commission on tax and welfare now being established by the Minister for Finance is designed to look at these and recommend how entitlements and tax might evolve after 2022.

But the public finance numbers only work if the emergency spending is wound down. And doing so carries significant political and economic risk.