17 Mar 2020 | 10.54 am
Coronacrisis: Action Plan Ignores Business Crisis
Economy needs stimulus package of at least €10 billion
17 Mar 2020 | 10.54 am
A government National Action Plan on Covid-19 which runs to 57 pages does not contain a single stimulus measure to protect the thousands of businesses facing wipe-out.
The action plan, published yesterday, speaks to the bureaucratic bubble in which the Fine Gael government operates. The action plan is full of flow charts concerned with operations of public services, but says nothing about the urgent measures required to assist cash-strapped business.
So-called business support measures cited include state-backed loan schemes that were already in place, but there’s no mention of rates relief, temporarily suspending employer tax obligations such as PRSI and VAT, or giving firms a VAT rebate.
On March 12, tourism ministers Shane Ross and Brendan Griffin called on finance minister Paschal Donohoe (pictured) to mitigate job losses by making significant reductions to VAT, local rates, water charges and other outgoings. The ministers also proposed postponing payments to the Revenue, banks and local authorities as a first step in stabilising businesses.
Donohoe requires a complete change of mindset if he and his colleagues are to follow the example of other countries such as Hong Kong, Germany, Italy, France, Denmark and the UK in offering meaningful supports to enable thousands of cashflow-starved SMEs to survive.
Under the Cura Italia plan announced by the Italian government on March 16, companies with annual turnover under €2m do not have to make tax and social insurance payments until June 2020 at the earliest.
The self-employed in Italy will receive a one-off payment of €600 for the month of March and maybe more later. “Nobody must feel abandoned,” said economy minister Roberto Gualtieri. “This is our first response to the emergency and in April there will be new measures.”
Budgetary projections for 2020 made last October have been sundered by the virus crisis. The Parliamentary Budget Office estimates that increased sick pay and illness benefits could increase Social Insurance Fund outlays from the €21.2 billion projected in Budget 2020 to €23.6 billion. This estimate is purely speculative, and could be higher or much lower.
Government has allocated additional funding of €435m to the HSE to deal with the crisis. This is to fund increased staff levels and overtime, improving the ambulance service and purchasing new medical equipment.
Unlike the Minister for Finance, social protection minister Regina Doherty acted quickly to introduce on March 16 an emergency €203 weekly unemployment benefit for six weeks to employed workers and self-employed workers who have been impacted by business closures.
The PBO has provided no estimate for the surge in claims for unemployment benefit and assistance. An extra 100,000 claimants over a six-month period would cost state coffers c.€700m when dependent payments are factored in.
Budget 2020 was framed on the basis of running a surplus of 0.7% of GDP in 2020. That won’t be happening now. Exchequer revenues are going to crater due to the collapse in spending and earnings in many areas of the economy.
So even before he contemplates remedial measures, Donohoe is facing a major shortfall in the government finances. He must also be aware that if he does nothing for enterprise then the situation could evolve into economic meltdown.
The emerging consensus from economists around the world is that the downturn will be at least as deep as that caused by the global financial crisis.
Writing in the Financial Times today, Martin Sandbu observes: “The right fiscal response is to sustain the income that people had expected to receive were it not for the virus. While the disease and the containment measures constitute a temporary (we hope) supply shock, the demand repercussions will make the recession deeper and longer.
“Speed is of the essence when the goal is to reassure people they will not be poorer. This puts on the table policy ideas that just yesterday seemed radical. Universal transfers to all Americans are being discussed seriously in the US (following Hong Kong’s example) as the quickest way to achieve traction on the real economy. The push by many economists to sustain incomes amounts to a tacit endorsement of targeting nominal GDP.”
Some economists are suggesting stimulus of the order of 4% of GDP. “If governments end the year with budget deficits in the single digits, they will most probably have done too little,” suggests Sandbu.
Ireland’s GDP in 2019 was €340bn and GNP was €260bn. Taking the GNP figure as a baseline, that points to an emergency stimulus package of c.€10bn required to stabilise the economy.
What this means in practice is government being prepared to take a large hit to its own income in order to prop up the enterprise economy, where endeavour fills Exchequer coffers to pay for public services year after year after year.
Unfortunately, all the indications are that Paschal Donohoe has been captured by the Department of Finance mindset, where the focus is on balancing the books. In that ‘I’m alright Jack’ worldview, ratcheting up national debt to fund public pay and public services, and to bail out banks, is all very well. The private sector, meanwhile, can go swing for it.