Check Against Delivery
I would like to begin by offering my condolences to the families who have lost loved ones during this pandemic, and to pay tribute to those on the frontlines during this period; our public servants, healthcare professionals, carers, gardai, transport and shop workers, all of whom are doing essential work under incredibly challenging circumstances.
I welcome the opportunity to update the House on the ongoing economic and fiscal situation.
LATEST ECONOMIC AND BUDGETARY DEVELOPMENTS
The necessary measures introduced to protect the public health, and to combat the spread of the Covid-19 virus, have resulted in a severe contraction in economic activity, both domestically and internationally.
The declines in output – and the associated increases in unemployment – are without parallel in living memory.
Last month, my Department published the Stability Programme Update, which outlined the scale of the economic challenges we are facing.
As I informed the House then, we are projecting that Gross Domestic Product will fall by 10.5 per cent this year.
Modified domestic demand, perhaps the best indicator of domestic economic conditions, is projected to fall by 15 per cent.
In the order of 220,000 jobs will be lost, with unemployment peaking at 22 per cent in the second quarter of this year.
On the fiscal front, the general government balance is assumed to be in the region €23 – €30 billion.
However given the radically uncertain outlook we face, it is important to emphasise that there is an unprecedented level of uncertainty attached to these numbers.
Ceann Comhairle, I want to stress that a deficit of the magnitude we envisage when expressed as a share of national income is very much in line with the European norms.
All countries are in the same boat.
The data we have seen since the publication of the SPU confirms the downward trajectory in our economy.
At the end of last week, around 460,000 people were in receipt of income support from their employer through the Temporary Wage Subsidy Scheme, with just under 590,000 recipients of the Pandemic Unemployment Payment.
Along with the 215,000 or so individuals on the Live Register, this means that around 1¼ million people are in receipt of some form of income support.
In the long—term, this is neither sustainable nor appropriate for an economy whose growth model is predicated on a competitive, dynamic and innovative private sector.
The most recent public finance data are also consistent with the assessment set out in the SPU.
Exchequer returns for April showed a deficit of €7.5 billion, more than double that recorded the same time last year.
Tax receipts were on a firm downward trajectory, while public expenditure was up almost €4 billion on the year, driven by significantly increased departmental drawdowns, particularly in the areas of Health and Social Protection.
The Government has responded swiftly and forcefully to address the economic fall-out from this crisis.
To date, the level of support to the economy from Government amounts to over €13 billion.
It is good economic policy for the Government to run a deficit when the private sector has experienced a demand shock of this magnitude, so that we can limit the loss of income for companies and employees and preserve economic activity and living standards.
But we can only do this because of our responsible management of the public finances, in particular the deliberate policy of running budgetary surpluses in the last two years.
Moreover, the economic turmoil is the result of a public health crisis, not of government mismanagement or policy errors.
On the contrary, we entered into this period from a position of strength, with little if any of the imbalances that characterised our economy and public finances just over a decade ago.
The guiding principle of this Government has been to carefully manage the public finances during good times so that we could be in a position to support the economy during bad times.
That is precisely what we have done.
Public debt will increase significantly this year; again this is appropriate and in line with the experience of our European colleagues.
We can finance this at relatively low cost at the moment but, Ceann Comhairle, we cannot ignore the reality of constraints, be they budgetary, monetary or political.
This is something that the Taoiseach and I have both pointed out.
Past experience has shown that market and political sentiment can change rapidly and so it is important that the budgetary position in Ireland does not become an outlier.
As Deputies will be aware, the gradual unlocking of our economy began on Monday, with the re-opening of a number of sectors.
However, it is clear that the new economic normal will be very different from the old – behavioural changes, including the need to maintain social distancing measures, will mean that recovery will be gradual.
Activity in some firms – including in the hospitality sector – is likely to be below capacity for some time to come, and this will necessitate supports, although these must be tailored and targeted and Government will not keep unviable firms on life-support.
Certain firms or business models that were viable pre-Covid19 may no longer be viable.
The priority for Government must be to support those that will be in a position to succeed in this new normal.
Ceann Comhairle, on May 2nd, the Government agreed a further package of measures to support businesses negatively impacted by Covid-19.
This package will allow businesses to begin charting a path forward in the months ahead.
The measures announced were:
- A restart grant of up to €10,000 for small and micro businesses.
- A three-month commercial rates waiver for impacted businesses.
- A €2 billion Pandemic Stabilisation and Recovery Fund, which will make capital available to medium and large businesses on commercial terms.
- A €2 billion Covid-19 Credit Guarantee Scheme, to support lending to small and medium-sized businesses for terms ranging from 3 months to 6 years, below market interest rates.
- The warehousing of tax liabilities for a period of one year following the recommencement of trading. During this period, there will be no enforcement action taken by the Revenue Commissioners, and no interest charges will be accrued on warehoused debt.
These measures complement the previously announced measures that mainly – though not exclusively – focused on households and employees.
REBUILDING THE PUBLIC FINANCES
We have the ability to recover, and to rebuild, from this crisis.
Protecting those who have seen their lives and livelihoods upended is the most responsible course that the Government could take, and that is what we have done.
But the unprecedented measures that the Government has introduced will take a toll on the public finances.
These measures of course cannot, and will not, last forever.
They are appropriate only during the crisis phase of this pandemic.
When our economy begins to recover, the Government will begin to roll back these measures, based on analysis of the facts as they develop and, as always, conscious of public health advice.
The budgetary impact of the measures we have taken during this crisis will, in large part, be addressed by the economic recovery.
Tax receipts will recover, people will return to work and public expenditure will return to more ordinary levels.
But it is an inescapable reality that there will be a cost to the State from these measures, and that cost will have to be addressed.
Responsible budgetary policies over the medium-term will do much of the heavy lifting: sustainable and steady increases in public services and living standards underpinned by sustainable and steady economic growth is the best way of correcting our fiscal imbalances.
Ceann Comhairle, while there has understandably been a huge focus on the pandemic in recent weeks and months, it is also the case that this is not the only challenge facing us.
Negotiations between the EU and the UK on a future relationship are ongoing.
The current transition will end on 31 December this year, unless a decision is taken jointly by the EU and the UK to extend it.
Much more progress across all areas is needed before June, when the EU and UK will jointly take stock of the negotiations.
Work is also ongoing on implementation of the Withdrawal Agreement, including the Protocol on Ireland and Northern Ireland.
The end of transition will mean the UK is outside of the EU, the Single Market, and the Customs Union, and this will mean change.
We will not know the extent of this change until we have greater clarity on the future relationship between the EU and the UK.
The Government is continuing its work to make sure that Ireland is prepared for the end of the transition period.
Overall, the interplay between the economic impact of the pandemic and a possible end to the transition period without a future relationship agreement in place, would have significant implications for our economy and our public finances.
We must and will be prepared for all scenarios, including the worst case.
Ceann Comhairle, we have persevered through difficult times before, and emerged stronger.
This present moment may be unprecedented, but, in many ways, we have entered into it from a far better position than in previous crises.
The severe structural imbalances that left us so vulnerable to the global financial crisis – credit growth, an overreliance on tax revenues from the property sector and a large balance of payments deficit – are no longer present.
The internationally traded sectors of the economy have proven highly resilient.
Our economy and labour market have strengths that this crisis, though historic, has not changed.
This is a time of immense uncertainty about the future.
It is a time of uncertainty for those who have lost or fear losing their jobs, for business owners, and for families.
We do not yet know when this pandemic will be contained, or when our lives will return to normal, but, Ceann Comhairle, I can say unequivocally that this Government will continue to make the necessary decisions to get people back to work, to reopen businesses, to restore the public finances and to protect our businesses, employees and households.
These decisions will often be difficult.
The recovery will take time, and challenges will remain, but we will recover, and come through this crisis as a stronger economy and a stronger society.