New Deal: State to buy shares in ailing firms
Package of 'Rooseveltian' measures fast-tracked to stimulate economy
The Government is to set up a State company to buy shares in struggling businesses as part of a new package of what are being called "Rooseveltian measures", which are aimed at stemming catastrophic job losses and creating new employment.
With 36,500 jobs lost in January alone, a shocked Taoiseach Brian Cowen, who last week said "jobs, jobs, jobs" were his priority, has now decided to fast-track proposals to stimulate the economy.
Until now Mr Cowen emphasised the need to first "stabilise" the country's finances before stimulating the economy. Tax revenues are down a massive 19 per cent, or €900m, on this time last year.
But the Taoiseach, who had already asked the Cabinet to come up with ideas to kick-start the economy, was shocked by figures last week which showed that unemployment is now at 327,900 and is expected to reach at least 400,000 before the end of the year.
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Now he is to urgently press ahead with several of the Cabinet's proposals to stimulate the economy, including a radical plan to establish a "well-managed" State company to directly intervene in ailing businesses.
The Sunday Independent also understands that the Government is likely to press ahead with a proposal to abolish employers' PRSI for new employees, as well as a range of measures to incentivise employers to take on people for training purposes and then to employ them full-time.
A number of other proposals are also being considered, including direct State involvement to help the struggling motor industry and construction sector, though, it is emphasised, "not big developers". The Government will roll out the new initiatives in two weeks.
Mr Cowen's request of ministers to "take time out" to formulate ideas is part of a three-pronged approach recently devised by the Government's advisers to deal with the escalating scale of the crisis.
An integral part of the new approach is to recapitalise the two main banks, a deal which will be announced this week. Under the terms of the deal, Allied Irish Banks and Bank of Ireland are to receive €7bn of taxpayers money in an arrangement designed to encourage existing shareholders to invest new capital in the banks.
The Taoiseach now also accepts that he must make himself more available to communicate with the public as part of an urgent effort to build consumer confidence and boost morale generally.
In that regard, Mr Cowen made what has been widely regarded as a significant speech to business leaders in Dublin on Thursday night.
Yesterday he also agreed to be interviewed at length on the Marian Finucane Show on RTE radio during which he dealt with issues relating to the economy and the banking sector.
During that interview the Taoiseach confirmed that the €8.2bn National Development Plan, which was recently repackaged as the Government's "stimulus plan" for the economy, would not go ahead in all its facets as it was based on a forecast of four per cent economic growth annually.
However, a dramatic escalation of the economic crisis, as evidenced by headline statistics published last week, has now provoked Mr Cowen, albeit belatedly, to introduce measures designed to maintain and create employment.
Last week Mr Cowen announced that the Government has decided to re-prioritise €150m of capital expenditure to employment-intensive activities in the areas of school-building and energy efficiency improvements.
"The biggest tragedy of the current difficult circumstances is the loss of jobs. Protecting jobs to the best extent possible and supporting those who become unemployed is of fundamental importance," he said.
The Government's proposal to directly intervene in struggling companies, through the establishment of a new State company, is perhaps the most radical of the measures under urgent consideration. Government sources yesterday said it was "more than likely" this measure would be introduced.
The details behind the proposal remain sketchy; it may work similarly to the Government's intervention in the banking sector, where the State expects to get a return on its direct investment, through the purchase of shares.
Most employed people over 16 contribute to Social Insurance. The amount paid is based on earnings and the type of work done. For this reason it is called Pay Related Social Insurance (PRSI). The law makes employers responsible for PRSI, though employees may have to pay a share.
By proposing to abolish PRSI, the Government is hoping it will encourage employers to take on more workers.
It is understood a measure will be attached to the proposal to prevent employers from sacking existing employees to take of new employees in an attempt to avoid contributing PRSI.
The Government is also said to be working on plans to provide companies with significant incentives to take on new employees for training purposes.
It is understood that such employees will be allowed to continue drawing their social welfare entitlements for a period of six months, with the employers making up the difference to at least the minimum wage.
After six months, the State would provide an incentive, probably grant aid, to the employer to take on the employee full-time.
The virtual collapse of the motor industry has led to a huge fall-off in the level of VAT coming into the Exchequer.
The Government is understood to be proposing a new "scrappage scheme" to allow for the purchase of new, or relatively new 'green' motor cars with low CO2 emissions.