The bill to the exchequer from Covid-19 could hit €50 billion by the end of 2022, the employers’ group Ibec has warned.
Speaking at the launch of the group's pre-budget submission, the organisation's chief economist Ger Brady said he expected the Government to run a budget deficit this year of about €30 billion as a result of lost tax revenue and increased spending on various pandemic-support measures. It had been expecting to run a modest budget surplus in 2020.
This is likely to be followed up by a deficit of about €15 billion in 2021 and €5 billion in 2022, he said, highlighting the precarious nature of the public finances over the short to medium term.
“The total across all the years of Covid and the return back to normality, which might be 2022 or 2023, you could end up with total addition to national debt – from the loss of tax revenue mainly but also from measures being increased – of €50 billion,” he said.
This would be higher than the cost of bailing out the banks during the financial crisis, which is now put at €42 billion in the wake of recent share sales.
Mr Brady said the economy would still need supports next year as tax revenues are unlikely to have fully recovered even if there is an economic bounce, and “there will still be a road to run in 2022 to get back to full capacity”.
In its submission ahead of next month’s budget Ibec called on the Government to ensure that emergency supports – due to be withdrawn from the economy in the first half of 2021 – are followed by a new stage of policy measures to support the economic recovery.
It said the continued package of supports in 2021 would need to be in the region of €6 billion, on top of the €20 billion in supports provided this year.
Recovery
“As those supports are withdrawn, in the first half of 2021, it is important that they are not all withdrawn at once,” said Ibec’s director of policy and public affairs Fergal O’Brien.
“The economy is not yet ready to carry itself. A new stage of policy measures will be needed to rehabilitate the economy, strengthen our competitiveness, and ensure recovery.
“This new set of economic supports should be based around a comprehensive and targeted Covid recovery package for the worst impacted sectors, and a clear plan to help protect sectors worst exposed to a difficult Brexit.”
The €6 billion of additional measures should pay for an expansion of the Government’s Employment Wage Subsidy Scheme, which is due to run out in March 2021, so firms avoided a “cliff-edge” effect once they hit 70 per cent of normal turnover.
Ibec also called for the reintroduction of the 9 per cent VAT rate for hospitality and more funding for activation and hiring schemes, such as JobsPlus, until unemployment falls below 6 per cent. It also wants €400 million to increase funding for and recapitalise higher education.
It warned that Ireland was facing the possibility of a no-deal Brexit, and that the full resources of the existing €4 billion in Brexit contingency be set aside for the years 2020 to 2025.
