TAOISEACH Leo Varadkar has said Ireland is headed for a recession as a result of the Covid-19 pandemic, but the austerity of the bailout years can be avoided with tax cuts used to stimulate the economy.
Mr Varadkar said Ireland's economic picture is “very bad” with the economy “put to sleep” as a result of the spread of the disease.
“We've experienced in the last two weeks a sharp, sudden and unexpected shock to our economy,” he said at a briefing in Government Buildings on Thursday evening.
“The number of jobs lost in the past week or so was lost over a period of three years during the economic and financial crisis of 2008 onwards.”
Mr Varadkar said that tax receipts would continue to fall in April and that the deficit and the national debt will all rise in the coming months.
“We're facing a public health emergency which in turn is leading to an economic recession. But as is always the case it has always been the case, we will get through it.”
Mr Varadkar said the objective “certainly if I have anything to do with it” is to avoid “another era of austerity” in Ireland and the tax increases and welfare cuts that were a hallmark of the post bank guarantee and Troika bailout period a decade ago.
He said the Government intends to pursue counter-cyclical measures to get the country out of recession, which he described as “the reverse of austerity”. This could potentially include tax cuts, he said, citing the reduction in VAT for the tourism, service and hospitality industry at the beginning of the last decade.
“We have cut taxes in the past to stimulate the economy and it has worked,” he said.
Mr Varadkar pursuing this policy would depend on the State’s ability to borrow at affordable prices which will also determine whether it can continue to maintain emergency welfare payments to people who have lost their jobs.
“I think we're in a good place in that regard, because we had a surplus going into this, because we've cash on hand, the rainy day fund, because the economy was in good nick, I think we will have the capacity to borrow long before other countries may lose it,” he said.
Mr Varadkar also said the intention remains for the State exams to go ahead and that Education Minister Joe McHugh and the State Examinations Commission are working on a plan to ensure this.
Mr Varadkar said a decision will be taken towards the end of next week as to whether the restrictions in place on public movement have to be extended, relaxed or refined.
“We’ll have a better idea towards the end of next week as to how we’re getting,” he said.
He said there had been “real progress” on flattening the curve but that while the daily rate of increase had come down to 10pc it needs to go down to 5pc or less.
He added: “The progress we've made is definitely not enough. We need to get that rate of increase down to about 5pc or less in order to give us the assurance that we need that we will have adequate capacity in our health service to deal with the increasing number of cases.”
He said there are now 2,000 empty beds across the health system and he had never seen so much capacity in the system, but he warned that the surge is “only starting”.
Mr Varadkar also ruled out giving people over 66 access to the €350 pandemic unemployment payment, saying they should already be drawing the State pension.
“We have to make sure that everyone has something and that does mean that some people are getting maybe more than they ought to have got and some people are getting maybe less than they think they should have got,” he said.
“But the only way you can make sure that people have money last Friday was a very simple scheme - €350 weeks across the board for anyone who lost their job and yes, there are anomalies, and we'll try and do the best we can.”
He said that Children's Minister Katherine Zappone is working on a proposal to provide childcare for healthcare workers that would be announced in the coming days and will likely involve childcare in the home.
This comes after Mr Varadkar warned the country is facing into an “economic emergency” due to the coronavirus crisis.
During a teleconference call with political leaders, Mr Varadkar said the spread of the virus resulted in sudden shocks to the economy.
The Fine Gael leader also noted that unemployment is now higher than during the first days of the financial crash.
One source said Mr Varadkar told the leaders of political parties that the Covid-19 virus has “done as much damage as the banking crisis”.
“He told them to suspect sudden sharp shocks to the economy and said this was now an economic emergency,” the source added.
Another source said: “Varadkar said we are facing an economic emergency”.
The Taoiseach’s spokesperson said Mr Varadkar said “the increase in unemployment was worse than the crash and that it happened more suddenly”.
“That’s a fact. More than 500,000 people are listed on the live register today,” the spokesperson said.
The crash caused widespread unemployment, collapsed the property market and resulted in a massive bailout for the banking sector.
Mr Varadkar was briefing political leaders on the impact the virus has had on the State’s finances by video link.
Party leaders and representatives of Independent TDs raised concerns about the delays in testing and the lack of personal protection equipment for medical staff.
At the end of the meeting, Mr Varadkar complained that his comments about the economy had leaked before the called had finished.
It comes after a fall in tax income will be an even bigger hit to the Exchequer than extra spending linked to the Covid-19 outbreak, Paschal Donohoe has warned.
The Minister for Finance told reporters on Thursday that a Central Bank estimate for €8bn of extra spending this year on measures linked to the outbreak will “definitely be in the vicinity of a figure like that, potentially higher the longer this public health emergency continues for and how quickly the public health guidance changes”.
And he said the full financial hit will be more than double that as income tax, Vat and other tax headings shrink even faster than spending rises.
“I should indicate though that the tax revenue that will be foregone as a result of economic activity going down is likely to be ahead of that (€8bn) figure and the cumulative cost of where we will be will be high but it is going t be completely by how long this phase of the public health emergency goes on.”
The Minister and his officials also admitted that the prospect of a so called V-shaped economic recover as swift and steep as the current crash is increasingly unlikely.
A rapid turnaround and economic bounce back is still a possibility the Minister said, but the Secretary General of the Department of Public Expenditure and Reform Robert Watt warned that even if it happens for some parts of the economy others face a longer period of disruption – including overseas travel.
It comes as the latest Exchequer returns from the Government, which track revenue and spending each month, showed that VAT collected in the first three months of this year was €849m less than the same period in 2019 at just over €1bn.
March is a big month for VAT payments which have been waived for many companies to help them survive the coronavirus lockdowns that have shuttered businesses across the State and confined people to their homes.
At the same as revenues fell sharply, current spending rose dramatically, by 11.5pc, pushing overall spending top €13.6bn, a figure that was €960m more than the Government had expected at the end of the first quarter.
So far, the State has set out around €8bn in emergency spending to help the economy survive the coronavirus shock, although the final bill will be much higher, with some economists saying it will cost €25bn to repair the damage.
“An Exchequer deficit of €2,535m was recorded to end-March 2020. This compares to a deficit of €966m in the same period last year,” the Department of Finance said in a statement.
“At this stage, the €1,569m year-on-year deterioration is driven by increases in current and capital voted expenditure,” it said.
Official data revealed today showed that the coronavirus pandemic has pushed over 300,000 workers onto State wage support lifelines as they have either been laid off or seen their pay cut.
The Central Statistics Office said that 283,037 people were in receipt of the Pandemic Unemployment Payment and that 25,104 were signed up for the Temporary COVID-19 Wage Subsidy Scheme.
The Central Statistics Office “Live Register” tracks benefits and so those who have signed up for Government wage have now been added to the register.
“The majority of those whose income from employment has been affected due to Covid-19 are currently being facilitated through the Covid-19 Pandemic Unemployment Payment which is administered by the DEASP, while a smaller cohort are currently being facilitated through the Revenue Temporary Covid-19 Wage Subsidy Scheme,” the CSO said.