Irish consumers will not need government incentives to spend record levels of savings once the economy reopens, the Minister for Finance Paschal Donohoe said on Friday, as he hopes for "signs" of a rebound in economic growth in the third quarter.
The Republic has been under a third, strict lockdown to slow its deadliest wave of Covid-19 since late December and although the large multinational sector has softened the blow on the economy, one-in-four people are temporarily or permanently out of work.
The Government has focused unprecedented levels of spending on propping up firms, jobs and providing more generous jobless benefits. A tax scheme aimed at consumers to drive hospitality spending last year failed after the sector was locked down.
“I think the role for consumption incentives could have been well made last year, but as we have gone through 2020 and even the early part of 2021, we’re seeing such a clear trend in household saving,” Mr Donohoe said in an interview.
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“If that trend continues, little incentive will be needed to encourage broad consumption within the economy. I think the real challenge we’re going to face will be where we are with employer viability.”
For that reason, supports will have to be unwound carefully for firms that do get back on their feet so any change does not become a catalyst for further economic difficulty, Mr Donohoe said.
Ministers have said they will maintain more targeted support from the third quarter for hardest hit sectors. Mr Donohoe said on Friday this will be mostly be through existing measures such as the wage subsidy scheme, the structure of which he added will outlive the pandemic and be available for future crises.
Whether sectors such as aviation, tourism, hospitality and arts will require aid into 2022 will depend on the success of the State’s vaccination programme and whether the initial rebound in growth expected this summer can be sustained.
Rebound or recovery?
“When I’m making those decisions, we have to be very careful we don’t mistake a rebound with a recovery. That is the first step in a recovery but it is not a recovery in its entirety,” Mr Donohoe said.
Mr Donohoe is closely watching new global corporate tax rules being developed by the Organisation for Economic Cooperation and Development (OECD) and he believes there is a good prospect that the nearly 140 governments involved can come to some sort of agreement by mid-year.
He added that it was not clear yet whether that agreement will include a global minimum corporate tax rate and reiterated his view that such a move could damage legitimate and fair tax competition for small economies like Ireland that use lower rates to attract investment.
On the crisis engulfing Ireland’s largest stockbroker, Davy, following a record central bank fine last week, Mr Donohoe said the firm’s market breaches were a grave breach of the standards but that the episode was not of a scale where it has damaged Ireland’s international reputation. – Reuters
