The stimulus package to be announced by the Government this week will be transformative. It could transform Ireland into a better place in which to live and work. It could help firms recover, bring us a single-tier health system and end the housing crisis. But it could also sink the economy under a mountain of debt. The cost undoubtedly will be enormous but done correctly and prudently, it could ultimately boost economic development.
The last election showed public support for substantial change in our society. Even Fianna Fáil and Fine Gael, conservative parties by nature, are being radically pragmatic because of the pandemic. There will be three major initiatives to get the economy going. The first major response to the pandemic was the wage subsidy in late March. It was the right approach and has helped many workers and firms. The next will be more subsidies for struggling firms and the third should be a major public capital programme (PCP) with two main key targets of ending both the hated two-tier health system and the housing crisis.
The wage subsidy, the existing subsidies for firms (supports on stamp duty, rates, lending, grants, etc) and this week’s supports for firms will all add up to the biggest Keynesian stimulus the Irish economy has ever had, and at exactly the right time. It will also be the greatest socialisation of the Irish economy ever and thus the power of the State must be harnessed to be transformative of our economy and society for the better.
In making his case for major stimulus to counter an economic downturn, Keynes said that government could fill bottles with banknotes and have the private sector dig them up and there would “be no more unemployment and, real income of the community, and its capital wealth also, would become a good deal greater.” But he then said: “It would, indeed, be more sensible to build houses.”
We must not just dig holes or throw money at firms through cash grants in the hope of recovery. We must avoid providing free-lunch bailouts for owners and private investors without ensuring that subsidies support jobs, avoid market concentration and put firms on a growth path.
It is impossible to get everything right, but there are some actions the Government must do right. First, there should be no subsidies to firms which have no hope of success, especially unconditional cash grants. Grants have been advocated by the beneficiaries, by Ibec and even by Sinn Féin. Better would be loans, convertible to equity and when repaid, it means the State gets our money back. This means more money for those firms which have a chance of survival. When profitable the firms can repay the loans and/or buy back the equity.
The assessments of firms should be made by IDA, Enterprise Ireland, New Era and other State bodies but with only a peripheral, secondary role for banks or private “professionals” to reduce conflict.
There must be no subsidies for firms which misbehave. No tax-clearance certificate – not a cent. Additionally, this cert must be amended so that any firm or group which engages in aggressive tax planning or has any operations in a tax haven (a condition in several European Union states) is precluded from subsidies.
Firms committed to climate repair should be helped. Firms which paid a dividend in the last year or had share buybacks in the past five years must be precluded. No firm which took to the courts against their employees to reduce their sectorally-agreed wages should get a cent. The importance of collective bargaining in the reduction of market inequality is internationally recognised. Ireland’s high market inequality could be reduced quickly with it, and thus it should be a condition for taxpayer subsidies.
The reduction of VAT for the hospitality industry is unlikely to work in boosting demand during this pandemic. Funding should be clawed back from firms which sack workers during the period of support. Conditionality on subsidies makes them much more effective.
How much should the stimulus be? As big as is possible in this world-stopping pandemic. Recent borrowings by the National Treasury Management Agency have been oversubscribed at negative interest rates. Thus further borrowing by the Government to counter an unprecedented pandemic is the right thing to do.
The third element of the stimulus is the major PCP. This must have the twin overriding objectives of ending the two-tier health system and the housing crisis. Health is key, especially with Covid and ageing and also the investment Keynes advocated – housing. It is time to build public housing directly and stop all the off-balance-sheet nonsense.
Additionally, part of the PCP should be to build world-class public transport in major cities, better hospitals, clinics, preschools, schools, investment in climate and in human capital, in education, training and active labour-market policies too.
The first steps in addressing the pandemic have worked well. The Government must help firms and the economy to recover in an equitable and effective way. But it also should ensure a rapid economic recovery with conditional, transformative subsidies to firms, whilst delivering a world-class, single-tier health system and solving the housing crisis. This is all doable. For it was in the ruins of war that a British government introduced its national health system and its welfare state.
Paul Sweeney is an economist