Cliff Taylor: Government went big and early with stimulus plan

Jobs will be saved – but the coming autumn will be marked by an economic reckoning

Euros

The temporary wage subsidy scheme was introduced in the early days of the crisis to encourage companies to hold on to staff. It has already cost €2bn.

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Sometimes you just need to follow the money. Ministers were patting themselves on the back about having announced 50 separate measures in the economic stimulus plan this week. But the problem with announcing so many different bits and pieces is that the significant stuff can get lost.

The nation spent Thursday evening debating the staycation subsidy and whether the VAT cut would be passed on (no is the answer, by the way and you can hardly blame the hard-pressed retailers). But look at where the big money is going – a massive €2.3 billion will be spent on giving many businesses a significant subsidy for employing people up to the end of March next year.

That’s as much as you might see distributed in the entirety of a normal budget day package.But with Ministers trotting out one by one again on Friday to re-announce all the bits and pieces and people complaining that they wouldn’t get their staycation money back until next year, the focus on the big stuff was lost.

The temporary wage subsidy scheme was introduced in the early days of the crisis to try to encourage companies to hold on to staff. It has already cost €2 billion. Currently 62,000 employers are availing of it in respect of some 400,000 staff.It has operated as a kind of income continuance plan, with a complicated fall-out for people’s tax bill.

From September it will be reformed. Companies who are operating at 70 per cent capacity or less will get a straight cash grant of €203 a week per employee, or €151 for those on lower earnings. Add paying employers’ PRSI at just 0.5 per cent – rather than the normal rate of just over 11 per cent – and you get a cash gain of €250, each week, for most qualifying employees.

This is a very significant cash injection for companies of all sizes. It is, as one observer put it, like a headage payment for staff, in the same way as farmers used to get cash for each head of cattle. Add in other grants and supports and there is a lot of money being pushed out the door.

Given the scale of this, charges from some quarters in business that the Government have not done enough look, on the face of it, hard to fathom. They are, unfortunately, driven by the dire position of many companies in the most exposed sectors such as tourism, hospitality and events. Many owners find themselves in a terrible position. The money spent on the VAT cut from 23 per cent to 21 per cent might have been better directed at more specific sectoral help – thought cutting VAT on hospitality would immediately have put these sectors under pressure to cut prices.

Office work

But the real problem is that unlike many other businesses, the route back to viability for companies in these sectors is not clear. Businesses which depend on people coming together – to eat, drink, shop, listen to a concert or whatever– remain under threat. And in particular those in town centres are hanging on desperately, hoping people return to their workplaces. Ibec, the employers’ group, welcomed the stimulus plan but added that “more must now be done to ensure the safe return of footfall to our towns and cities. We need greater clarity on return to office work and education and more fully functioning childcare and transport”.

Within those two sentences lie some knotty policy challenges. The stimulus plan will help many of the worst-threatened businesses, but sooner or later they need more customers.

A nervy few months now lie ahead. There are clear signs of some pick-up in consumer spending generally. Many people have saved cash and have it to spend. But huge nervousness remains. Announcing the stimulus plan now, rather than waiting for the budget, is a recognition of how delicate the economic situation is and the uncertainty facing many companies. It is an attempt to shore-up confidence. It has used a lot, if not all, the Government’s short-term financial firepower upfront.

Aviation job losses

Autumn will see a reckoning, of sorts. We will see how many people have come off the pandemic unemployment payment and how many remain. The six- month payment breaks given by banks to mortgage and business loan customers will start to run out. Some more businesses will call it a day, despite the supports. It is hard to argue with the unions when they say a tsunami of job losses is possible in aviation. Illustrating the policy dilemmas here, just as the pilot’s union was announcing its concerns this week, the Dáil was debating whether the follow-up monitoring of people arriving through the State’s airports was creating Covid-19 risks.

The Government will present its national economic plan in October, which will be the first stab at the longer-term implications of all this for the public finances, as well as for the wider economy. For now, the big money measure of subsidising companies to keep people at work is the right thing to do. The decision on which businesses are likely to be viable in the long term just cannot be made right now.

Faced with the choice of stick or twist – with announcing a small package now and keeping most of the firepower for the autumn, or acting immediately – the Government has chosen to move now. The July stimulus was originally expected to be a minor event, followed by the big news in the autumn. Instead it represented the biggest budget stimulus we have seen, adding close to 10 per cent to demand in the economy over the rest of the year.

This is enough to boost the economy over the rest of 2020 and save a lot of jobs. And then we will see where we are. If you want an economic forecast beyond that, probably still best to ask an immunologist.

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