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Future taxpayers will shoulder burden of unprecedented €48bn pandemic spend – but alternative was “far worse”


A Covid-19 mural honouring healthworkers in Dublin city. Photo: Brian Lawless

A Covid-19 mural honouring healthworkers in Dublin city. Photo: Brian Lawless

A Covid-19 mural honouring healthworkers in Dublin city. Photo: Brian Lawless

Future taxpayers will shoulder the burden after the Government spent an “unprecedented” €48bn insulating households and businesses from the effects of the Covid-19 pandemic, according to a new report.

The Department of Finance Tax Strategy Group document says the alternative would have been “far worse”, in the shape of a deep recession.

It says approximately €48bn –  around one fifth of national income – was made available during the period 2020 to 2022 “to reduce the short-term impact on incomes, boost the capacity of the health system and to limit long-term economic ‘scarring’”.

“During the pandemic, Government deployed the public sector balance sheet on an unprecedented scale to insulate households and businesses from the effects of the pandemic and associated public health restrictions,” it says.

“However, unlike many countries, the majority of the support took the form of direct public expenditure: approximately €37bn was made available in direct expenditure measures, while taxation measures accounted for a further €6bn. The remaining approximately €5bn was made up of ‘below the line’ measures such as loans and guarantees.”

The report on the government response to the Covid pandemic says its largest components were three income support schemes.

They were the Pandemic Unemployment Payment (PUP), the Employment Wage Subsidy Scheme (EWSS) and Covid Restrictions Support Scheme (CRSS).

The EWSS and its predecessor, the temporary wage subsidy scheme, aimed to maintain the link between employers and workers by supporting wages and cost approximately €10.7bn.

A further €9.2bn was spent on the PUP, which provided help to those who lost their jobs as a result of restrictions.

The CRSS provided financial assistance to firms that could not trade due to the health measures, at a cost of €0.7bn.

“The magnitude of state intervention during the pandemic placed a burden on future taxpayers by increasing the stock of public debt, but it is clear that the alternative would have been far worse,” it says.

“In the absence of fiscal support, the massive shock to the labour market may well have resulted in a collapse in personal incomes and consumer spending and, as a result, tax revenues, severely damaging the public finances and leading to a deep recession.”

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It says Ireland’s wage subsidy schemes compared favourably with those abroad and had greater flexibility by allowing workers to return to work full-time and continue to receive supports.

However, it says the fiscal response to the pandemic took a significant toll on the public finances.

It says Ireland’s ratio of public debt to national income increased substantially, reaching around 106pc of national income last year.

The country entered the pandemic having recorded successive budgetary surpluses. At the end of 2019, the general government surplus was €1.8bn, or 0.8pc of national income.

By the end of 2020, this had deteriorated to a very large deficit of €18.4bn, or 8.8pc of national income. A further deficit of €8.1bn, or 3.6pc of national income, was recorded last year.

The report says the cost was significant, but the schemes achieved the key objective of protecting incomes and enabling the economy to bounce back rapidly once the pandemic was brought under control.

Reflecting this, it says Government’s three primary support schemes have now been fully unwound.

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