It is clear that the economic impact from the Covid-19 crisis is exceptionally deep and will be long-lasting. And so a major package of supports from the Government for businesses and individuals was appropriate, with the sums involved in responding to the Covid-19 crisis making it one of the most significant economic policy responses in the State’s history. Huge amounts of cash have been taken out of the economy by the crisis and the State is attempting to fill at least some of the gap via a succession of measures, the latest announced on Thursday.
The full amount of €7 billion will not all fall to the State to be paid – for example €2 billion is in credit guarantees, most of which, we must hope, will never be called on. However the exposure for the exchequer is significant. And while this level of spending will have a big impact – it has to have – the vital factor that will influence economic recovery lies elsewhere. The virus needs to remain suppressed because, if it does not, the State will again be involved in damage limitation, rather than trying to reboot the economy.
There is no doubt that the measures to date have saved significant numbers of jobs and also underpinned the incomes of many individuals. Continuing these supports as – we hope – the final parts of the economy reopen and companies struggle to get back into operation is the correct course.
Subsidising wages is an expensive business, but it is worth it if it allows companies and jobs to be saved in the longer term. The PUP supports have been important but cannot continue forever. A big part of the challenge facing the Government is to help those who do not get back to work to find new jobs, and to retrain if needed. Initiatives to do this are contained in the stimulus plan but the challenge of implementation here is very significant.
The credit supports for business are welcome though in many cases smaller companies will be understandably loath to take on new debt. Enhanced cash grants aimed at SMEs will help many to reopen.
Elsewhere there is a mix of new policies. The support for staycation spending will be welcomed by the tourism industry and holidaymakers, though it may be subsidising holidays which people already planned to take. The surprise decision to cut the main VAT rate from 23 per cent to 21 per cent is odd in that it will cost a significant amount but may have little impact on consumer behaviour.
Overall the Government has committed a lot of cash and wisely concentrated the bulk of it on supporting businesses and individuals caught in the middle of this major crisis. The spending is of a level which can make a difference. With so much cash now committed, a lot hangs on our efforts to keep the virus under some kind of control.