The scale of the initial hit to the economy from the Covid-19 crisis is quickly becoming evident. The shutdown in activity in many sectors left 16.5 per cent of the workforce on some type of income support in March and this will have risen further in April. The outlook remains uncertain – some type of reopening of activity may start next month, but it will be very gradual and consumer behaviour will remain cautious.
It presents unprecedented challenges for policy makers. The Government has had to move rapidly to put in place a range of income supports, in part to try to help companies to keep employees on their books. Supports have also been introduced for businesses – and more will be needed. One concern is what more can be done before a new government is in place. The seemingly interminable delays in negotiations are out of kilter with the urgency of the situation.
The framework document produced by Fianna Fáil and Fine Gael to form the basis of negotiations with other parties was disappointing. It was little more than a wish list, with little analysis of what was now needed to address the immediate crisis and to try to boost the economy afterwards. Beyond that, it outlined a much greater role for the State in the economy without any indication of how this might be paid for.
The Government has no option in the short term but to push spending sharply higher and borrow to do so – this is essential as it will protect citizens and give some prospect of a basis being in place for recovery. But realism is needed too. If, beyond this, we want to expand the role of the State further and promise better services, then we also need a discussion of how this will be paid for in the years ahead. Our national debt is already €200 billion and is set to rise sharply. There is a limit.
Government forecasts to be submitted to Brussels shortly in the stability programme update will underline the scale of the challenge. Forecasts now cannot be exact, but clearly the budget will move heavily into deficit this year. For now – crucially – Ireland can borrow at a low interest rate to fund this, helped by the State's reputation, but also the support of the European Central Bank in the markets.
If the worst of the health crisis does pass in the months ahead, then this gives us a chance of navigating our way through this and trying to start a big rebuilding job heading into next year. There are dangers and unknowns and some sectors , such as tourism and pubs, face particular threats. The Government will need to spend more in the months ahead, with a real challenge of using the money to best advantage to save companies and jobs. And then, after the health crisis passes, we will have to take stock.