There will be a strong rebound in the economy in the latter half of this year but that does not mean it will lead to a full recovery, Minister for Finance Paschal Donohoe has said.
Mr Donohoe said that the rebound would constitute a vital first step but that that did not mean it could be sustained and become a full recovery, where the unemployment rate fell to a manageable level, and jobs were created in the economy.
Mr Donohoe was speaking at a press conference on the Government’s Economic Recovery Plan, which was unveiled on Tuesday.
Total funding for the plan will amount to €4 billion, he disclosed.
Mr Donohoe, Minister for Public Expenditure Michael McGrath and Minister for Social Protection Helen Humphreys gave a detailed outline of the plan, which includes €915 million in European Commission money. Over half of the EU funding has been ring fenced for “Green” projects such as home retrofitting loans, and a new suburban rail line for Cork City.
The main component of the package will be the extension of the Employer Wage Subsidy Scheme (EWSS) until the end of the year at least.
Minister for Public Expenditure Michael McGrath said that the extension to the EWSS alone would add €2 billion in additional costs to the Exchequer in 2021.
Deficit
Mr McGrath estimated the overall deficit for 2021 would be between 4.7 per cent and 5.7 per cent but would probably be closer to the higher percentage figure.
The Minister for Finance also said the aim of the Government was to try to reduce the unemployment rate to between 8 per cent and 10 per cent once the economy starts to recover fully from the pandemic.
Ms Humphreys also confirmed that the Pandemic Unemployment Payment (PUP) would be reduced incrementally, in three sequential drops of €50 beginning on September 7th, then in early November and then in early February. At that stage those who had been on the highest rate of PUP would have their weekly welfare payments reduced to the same as those on jobseekers’ allowance of €203.
Ms Humphreys said that the number receiving PUP had already fallen from a high of 480,000 in February to 309,000 now.
“Next week the numbers will fall below 300,000 and we expect numbers to fall significantly during June, July and August,” she said.
Speaking about his views on how the economy would perform as society reopens, Mr Donohoe said:
“I believe there will be a very strong rebound in the second half of the year. But there is a difference between a rebound and a recovery that is sustained and leads to falling unemployment.
“A rebound is the first and vital step in the recovery but not equal to all the recovery.
‘Bridge’
He said the plan constituted “a bridge between both” (the rebound and the recovery.
“After many months of being shut, we are giving every support to business we can for this (key period) so that they can be open beyond the rebound and stay open for next year and have confidence for the future.
“At the heart of the recovery is getting our country back to work,” he added.
At the heart of the financial component is the EWSS which will continue to supplement the wages of employees in businesses affected by the Covid-19 until the end of the year. He also raised the possibility that some reduced form of EWSS would operate in 2022. At present some 300,000 employees have their salaries supported by Government funding.
He said that changes would also be made to the Covid Restrictions Support Scheme which supported 22,600 businesses. He said that it would be extended until the end of the year and the Government proposed an “enhanced restart payment” to businesses which were reopening. He said the packages could be worth up to €30,000 for reopening businesses.
The reduced rate of VAT for hospitality is also set to continue until September next year. Mr Donohe also said the Government has agreed to essentially “warehouse” VAT and employer PRSI payments until the beginning of 2023. Employers who wish to defer payments of those taxes will have a zero percent interest rate in 2022 and a 3 per cent interest rate (which is lower than the Revenue rate) in 2023, which will allow them to overcome any early cash-flow issues in the early stages of reopening.
‘Critical’
“It’s all about making the coming months which are so critical in getting our economy open, and getting those companies viable again. These supports give those businesses every chance of becoming viable again,” he said.
Mr McGrath said almost €12 billion in additional funding has been allotted for this year to continue the State’s response to the pandemic.
“This additional funding has been critical in supporting health and other frontline services,” he said. .
He said that an additional €4.4 billion had been provided for health services in 2020 and 2021, and €2 billion had been assigned to pay for business rate waivers.
