Donohoe warns finances spent on Covid-19 will have to be rebalanced

Minister for Finance Paschal Donohoe has warned that the public finances must be returned to balance after the extraordinary expenditures incurred to deal with Covid-19.

He said that while economic growth later this year and next would “drive most of the improvement” in the public finances, some “difficult decisions” will be required by this Government and the next one to close the gap between tax revenues and expenditure.

Mr Donohoe’s warning during Dáil statements on Thursday is seen in Government circles as a warning that the extraordinary supports to workers and businesses introduced in recent weeks will have to be gradually phased out once the worst of the pandemic has passed and the economy begins to reopen. However, there is extreme nervousness about the political consequences of reducing the special welfare payments and wage subsidies.

Mr Donohoe outlined the scale of the special expenditures undertaken in recent weeks and the effect of the pandemic shutdown on the economy and the public finances, before looking forward to the necessity of repairing the public finances once the worst of the virus has passed.

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“If the right decisions are made at international levels we can avoid the pain of the last crisis,” Mr Donohoe said. “However, this does not mean that we can do everything. Our deficit will have to be reduced, our national finances must return to a position of balance,” he said.

“The daily debates about making choices within limited resources that existed before this crisis will, of course, endure after the crisis has passed. What we value and prioritise and how we pay for it will continue to be a central debate of democratic politics.”

Decisions

Fianna Fáil’s finance spokesman Michael McGrath endorsed Mr Donohoe’s assertion of the necessity to repair the public finances in the medium term. However, he said those were “decisions for another day”.

Fianna Fáil public expenditure spokesman Barry Cowen asked if the pandemic unemployment payment would be extended after May, and whether this could be legally done before a new government was in place.

Sinn Féin finance spokesman Pearse Doherty said the Government must not reduce or “taper” the special Covid-19 welfare payments of €350, as suggested earlier this week by Mr Donohoe, though his speech on Thursday made no reference to it.

Mr Doherty said there should be “no return to austerity”, and the Government should borrow and secure funding from Europe for a major stimulus package.

His colleague David Cullinane called for investment in housing, healthcare and better wages. “We need a bailout for workers and for families,” he said.

Alarm bells

Labour leader Alan Kelly said the Government should borrow more “rather than impose savage austerity on citizens”.

Richard Boyd-Barrett of People Before Profit said the “alarm bells of austerity were ringing”.

Many TDs demanded additional public investment in a wide range of public services while insisting that State supports for workers and small businesses be continued.

However, there is growing apprehension in the Department of Finance, not just about the rising costs of the crisis but the legacy costs of higher health and welfare bills.