Covid fallout 'not a return to austerity'
The Irish Fiscal Advisory Council says that it does not expect the Covid-19 recession to cause the kind of austerity seen in the economic crash, but has warned that Ireland will need large amounts of funding for new borrowing.
Representatives of the council were speaking to the Dáil committee on Covid-19, as the full scale of the economic fallout of the virus was laid bare. The council's Sebastien Barnes told the committee that fiscal adjustments ranging from "€6bn to €14bn over the period 2023 to 2025", but said that the impact of this would be different to the economic crash in the last decade.
Mr Barnes told the committee that he believed this could be achieved by slowing the rate of spending, rather than necessarily slashing it.
"The adjustment would still be less than a third of what was implemented after the 2008 crisis. This does not mean a return to severe austerity. Fiscal adjustment will be needed but some upward and downward adjustments, either in aggregate terms or on specific items, are a normal part of budgetary management.
"The adjustment could be achieved to a large degree by growing spending at a slower pace than the economy grows. We do not expect austerity in the sense of significant increases in unemployment due to severe fiscal adjustments taking place in a downturn as Ireland saw after 2008."
However, Rise TD Paul Murphy said that the adjustments represented austerity economics. Dr Eddie Casey, chief economist at IFAC, told Mr Murphy that "year-on-year it would be, in the central scenario, about three-quarters of the average adjustment"of the 2008-2014 period. Mr Murphy said that this was a sign that austerity would be reintroduced in Ireland.
"In the event of the economic crisis being deeper than anticipated, the austerity will be even deeper, in line with the austerity imposed by Fianna Fail and the Greens from 2008 on
. This austerity flows inevitably from the economic situation and the commitment of the establishment parties to Ireland
’s position as a corporate tax haven."
Mr Barnes also told the committee that he believed that financial supports needed to be given on a regional basis, in order to allow regions stave off the worst of the financial blow.
"One does have to think very carefully with regard to the regions because some will be hit much harder than others. That makes the overall adjustment much more difficult. That is definitely a factor that needs to be taken into account both for purely economic reasons and for important social reasons."
Later, economist Stephen Kinsella told that the committee that it would not be advisable to "let the market do its thing" when it came to supporting SMEs.
"It behoves the Government to support businesses that are in trouble at the moment. We should consider large-scale grant programmes to the extent that we can. We can have claw-backs and bring in equity releases later on. There are many details in the design of policy. As a basic measure, however, we should seriously consider large-scale grant aid to SMEs, particularly medium-sized enterprises, which in my view have been left behind."
