The Government did what it had to do in the budget – announced that it would continue to pump billions of euro into the economy next year to fight the pandemic. There will, as ever, be debate about the course it took and some of the individual measures it adopted. But there can be no argument that the general approach was correct. It is an emergency situation and it demands an emergency response in an unprecendented package.
In the face of a monumental economic shock, the impact of which is set to continue, the Government simply has to continue what it started and try to limit the damage. The amounts of money involved are staggering – it is a €17.75 billion budget – but then so has been the impact of the pandemic, particularly on unemployment and the prospects of young people.
There is no question now that the damage here will be deep and long-lasting. By intervening on a massive scale the Government can limit the impact on people’s lives and livelihoods. We can hope that by next year we will be through the worst of this, but we just don’t know.
The risk, of course, is that the virus persists and restrictions remain through much or all of next year, inflating the cost to the exchequer and causing much wider economic damage. Add this to the potential cost of the United Kingdom leaving the European Union trading regime without a deal and Ireland would face a nasty scenario in 2021.
We can hope that many of the costs of the crisis are once-off and can thus be met through borrowings
These risks mean that Ministers Paschal Donohoe and Michael McGrath have had to measure their interventions and leave a large part of a €3.4 billion recovery fund unallocated as yet and available to respond to events. The deficit next year will be more than €20 billion, just a bit down on this year. Fortunately borrowing costs for the Government are at extraordinarily low levels and look set to stay there for now.
There will be tough decisions in the years ahead. We can hope that many of the costs of the crisis are once-off and can thus be met through borrowings. However it is certain that it will also point towards a bigger role for the State in future – in healthcare, providing social and job supports, in housing and greening the economy. As McGrath said, delivering value for money will be vital. These ongoing spending pressures will in time require more revenues. A new commission on tax and welfare is to examine the choices – there is no doubt that it is paving the way for raising extra revenues.
These are questions for another day. For now, all the focus is on limiting the damage and trying to deal with extraordinary uncertainty. The risk of the imminent imposition of further restrictions shows how difficult this will be. Ireland has the resources to get through this, but it will not be easy.