After the massive multi-billion euro cost of the pandemic to the Exchequer, you would think some financial pain was on the way. After borrowing around €30bn in two years to fund Covid supports, you might imagine that tax increases were on the way.
In fact, throw into the mix the changing corporation tax environment (set to cost us at least €2bn a year), Brexit, and worries about a new inflation spike, and some kind of belt-tightening might be required.
But the Summer Economic Statement (SES) from the Department of Finance envisages an extraordinary fate in which there is room for €1.5bn in extra spending, and tax cuts every year for the lifetime of this Government.
The budget this autumn will see around €500m for new tax measures with proposals being considered to link income tax bands to inflation.
Having suggested back in April that the State could run up a minimum €800m deficit by 2025, the SES is talking about a deficit of €7.4bn. The State also plans to borrow an additional €18.8bn.
On paper it reads like a 2021 version of the Charlie McCreevy dictum – that “if I have it I spend it”. This one reads like “if I can borrow it I will”.
This extended increase in borrowing assumes two things. Firstly, it assumes that we can continue to borrow at historically low rates. Secondly, it assumes that the EU Stability Pact, which dictates that Eurozone members must keep to modest budget deficits, is toast for several more years.
On the first issue, this largely depends on the ECB bond-buying programme. On the second point, presumably the Government is hearing that deficits are going to take place across Europe beyond the middle of this decade.
Perhaps there is a window to spend here. There is an opportunity to try to fix the housing crisis with a massive State intervention, similar to what was advocated by the ESRI by doubling the planned State spend.
There may be a need also to finally fix the health service, having seen that the Government’s fear of having hospitals overrun during Covid led to additional lockdown restrictions which have cost billions of euro.
All of these spending and borrowing plans are underpinned by assumptions about the economic recovery that will flow after the pandemic. Exports will continue to be buoyant. Foreign direct investment will continue to pour in. Jobs, higher Vat returns from spending, and strong income tax receipts will carry it all through.
That seems to be the assumption behind the Government plan to have current and capital spending at €93.2bn in 2025.
To put this in context: before Covid, income tax receipts in 2019 (including USC) amounted to €22.9bn. The health budget for 2021 is estimated to run to nearly €21bn.
Last year the national debt was €218bn. This is expected to grow to €280bn by 2025 – reflecting the additional spending on Covid measures and the extra spending announced for the next few years.
It appears that much of this change in approach is dictated by the need to fix housing and health, as nervous coalition parties looked at their performances in the Dublin Bay South by-election. But there are no guarantees that throwing borrowed money at these two problems will actually fix either of them.
Or perhaps there is another element to all of this. Extraordinary times require extraordinary measures. Every country in the world has been affected by the pandemic.
When Covid era borrowing is due to be repaid a decade from now, much of it could well be owed to the ECB. Regardless of the borrowing rates when the time comes, perhaps it will be extended and kicked down the road on a massive pan-Eurozone scale.
In which case practically free money today, could remain practically free. But it is quite a gamble.
Of course there is another possibility. The Summer Economic Statement will be torn up when things don’t go so swimmingly. In which case, it’s just a press release.
Taoiseach Micheál Martin was down in Barry Cowen country in Offaly on Thursday, making an important jobs announcement. Timing is everything in politics.
Bord na Móna outlined its plans for job creation as it re-invents itself as a climate change and environmental champion in a post-peat era.
The job numbers in the press release came flying in. The state company is going to create 1,435 jobs over the next five years. It has already created 550 jobs. Throw in an additional 250 jobs, plus around 300 from joint venture partnerships, and a few hundred from construction – and it ends up at over 1,400 jobs.
This is all good news for a region that has been badly hit by the transition away from peat. According to the announcement the jobs will be in things like renewable energy, recycling and peatland rehabilitation.
Buzz words about carbon capture and climate change were everywhere. But where will the money for Bord na Móna come from?
Many of the jobs in rewetting boglands and assisting carbon capture are great, but won’t necessarily bring in income for the firm – which will still have to pay the bills as a semi-state company.
It is going to hire people in product innovation and recycling projects, such as re-purposing plastics used on farms. All good stuff, but these projects could take several years before reaching full commerciality. There would be some commercial casualties along the way.
The biggest commercial aspect to the plan is renewable energy. Bord na Móna has signed a joint venture deal with the ESB which will see it produce enough wind energy to power around 660,000 homes by 2030.
This is a good model because it sees Bord na Móna use its landbank, while the ESB brings its expertise in wind energy. This is quite different to the previous Coillte model where it developed wind energy assets and then flogged them off in 2018.
Coillte is however continuing to develop wind energy projects together with the ESB.
The scale of the Bord na Móna ambition is significant. So too are the profits to be made. Bord na Móna and ESB have an existing wind farm, called Oweninny 1 at Bellacorrick in Co Mayo. It was commissioned in 2019 and has 23 turbines.
Accounts just filed for Oweninny Power Generation show that in the year to March 31, 2021, it sold €25.5m worth of electricity to ESB, its joint venture partner. Incredibly, the company made an operating profit of €13.5m on that €25.5m of revenue – an operating margin of 53pc. Profit before tax was €9.5m.
Between data centres and electric vehicles, demand for electricity is set to rocket. Bord na Móna envisages having 50pc of a business around 12 times the size of Oweninny. That would amount to half of a business making profits of €114m profit a year.
These margins make you question how much we are all paying for electricity – but equally, building these wind farms is expensive. It also makes you wonder why Bord na Móna didn’t do it years ago!