Warnings were delivered at a recent meeting of the Cabinet sub-committee on the economy about the high cost of the Covid-19 crisis. There is no suggestion that any effort was being made to argue for a premature easing of restrictions. Rather, it appears to have been a warning from Minister for Finance Paschal Donohoe and Minister for Public Expenditure Michael McGrath to the rest of the Cabinet that there is a limit to the room for manoeuvre on the public finances.
The lengthy restrictions required to bring virus numbers back down from the post-Christmas peak are leading to an inevitable cost in supporting companies and individuals. Money set aside in the budget to deal with the fall-out of the Covid-19 and Brexit crises is being quickly spent. There is no reason at this stage to believe that the budget sums for 2021 are under general pressure. But while the worst Brexit outcome assumed in the budget has been avoided, the extent of the current restrictions would not have been anticipated last October.
The Government has no option but to extend the general support programmes – the wage subsidy scheme and the Pandemic Unemployment Payment (PUP) – into the summer. A full-scale reopening when the current restrictions are reviewed in early March will not be on the cards. A gradual reopening of schools may be possible, but even the apparent plan to restart construction on March 5th looks far from a sure thing.
Beyond that, the Government faces very difficult decisions, framed by the need to suppress the virus. The signals are that reopening will be careful, slow and conditional on virus numbers staying down. This seems sensible, as the longer the vaccine roll-out persists the more the population will be protected.
This has two key phases for the public finances. The first will involve the continuation of general supports for longer, though not indefinitely. The second will be the requirement to then spend more to promote recovery and support sectors likely to be affected for longer – such as those relying on travel and inward tourism and live events.
The move from this first phase to the second will be hugely difficult. The phasing down of generalised supports will mean the end of the road for some companies and will push up unemployment. The rebuilding job will not be easy – priorities will have to be chosen, based on the potential recovery path of different sectors.
As of now it is difficult to plan this with any precision, or to lay out a longer-term plan for the public finances. Rock bottom interest rates are a huge support and will continue for some time. But difficult choices will still have to be made about the public finances as the emergency phase of the pandemic draws to a close – and the consequences will remain for many years to come.