The country's leading economic think tank has called on the Government to maintain the €350-a-week Pandemic Unemployment Payment (PUP) and warned that moves to taper it prematurely would damage the economy further.
The comments from the Economic and Social Research Institute (ESRI) came as Taoiseach Leo Varadkar signalled that major decisions on the payments could be put off to the next government.
The ESRI said in its quarterly survey of the economy that the payments should be maintained and extended even if that meant a much bigger State budget deficit this year.
"At this point in time, I don't think we should be considering that… particularly as the economy is still only being opened up. I don't think we should look to taper those payments," Kieran McQuinn said.
The ESRI's comments came amid a bitter debate in the Dáil over a Government proposal to vote through increased funding for the Department of Social Protection due to the huge rise in welfare payments caused by the coronavirus crisis.
Mr Varadkar insisted that the Dáil is being asked to approve the funding on a "no policy change" basis and that the extra cash, understood to be more than €5.5bn, is needed so that welfare payments like the PUP and State pension can continue to be paid.
Previously the Taoiseach had sounded the alarm over the PUP, saying "there are examples of people who are actually getting more" from the scheme compared with what they had earned when working. He said he had been told by employers that "it's hard to get people to go back to work because of that".
Almost 600,000 jobless workers are receiving the €350 a week and it is estimated that 200,000 of them, mainly part-time workers, are pulling in more in benefits.
The PUP and a wage subsidy scheme in which the Government pays part of the pay for workers who are not made redundant by their companies were initially put in place for 12 weeks and budgeted at €4.5bn. As both schemes now look certain to be extended, the Department of Social Protection will need more funding.
Sinn Féin TD David Cullinane said the estimates the Dáil will be debating today will be out of date as the PUP and Temporary Wage Subsidy Scheme are currently due to end next month. He described the situation as "ludicrous".
Mr Varadkar said "I really hope that nobody in the house is trying to sow concern or worry among people who are in receipt of the Pandemic Unemployment Payment," he told TDs. He said people in receipt of the PUP will continue to get the payment beyond June 8 and added: "This government or the new government will have to make a decision as to how long that will be extended to and will also have to deal with some of the anomalies which people are aware of already".
Mr Varadkar added: "As much as is possible we will leave the big policy decisions we made by the next government whenever that happens."
The ESRI forecasts compounded the bleak immediate picture for the economy, which the think-tank expects will record its deepest ever crash this year, with a 12pc drop in gross domestic product.
It expects the budget deficit to come in at €28bn this year after two successive years of surpluses, and Mr McQuinn warned the number could be much higher if the lockdown has to be extended.
He said the Government would need to step up to the plate with supports for businesses.
So far €7bn has been allocated for extra health and the wage support measures, and a further €7bn has been put in place for loans to enterprises, an amount that could be severely tested with the Central Bank of Ireland assessing that small and medium-sized companies alone have cash requirements of €5.7bn.
The ESRI said there was a big risk that heavily indebted companies would not be able to repay Government loans.
"To maximise the chances of survival, and ensure indebtedness remains low, where feasible policy could aim at expanding grants and other solutions that would provide direct cash injections to firms," it said. That is a view shared by former Central Bank of Ireland governor Patrick Honohan, who said recently that it would be better to recognise this up front rather than risk firms collapsing and an unanticipated budget shock later.
The ESRI said it broadly shared the view of the Irish Fiscal Advisory Council, the State's budget watchdog, which said yesterday that the Government would need to spend billions of euro next year to support the economy once the immediate economic and health shock had passed.
Mr McQuinn warned that if the Government started too early on budget cuts, that would compound the severe shock to the economy and prolong the recession, "which will ironically mean you will need a larger adjustment over the longer term".
"As you move beyond the phase where the economy has been locked down back into a stage where you have broader economic activity able to resume, then we believe there is a need for fiscal stimulus and in that sense we are talking about housing being one clear area," he said.
Even with higher spending, the economy was not going to need the dramatic cuts to the budget that were put in place after the financial crisis struck as Ireland is in a fundamentally stronger position after years of growth.
"Once the medical phase of this passes, the economy can go back to being very strong," Mr McQuinn added.
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The Government will have to spend billions of euro to help Irish firms survive the Covid-19 shock. If it wants to avoid a re-run of the divisions caused by the financial crisis, it needs to build a fairer society - and the best way to do that is to push for a "living wage".