Mr. Sebastian Barnes:

On the Deputy's first point, Brexit and Covid are a double whammy in the sense of having two shocks at the same time. Hopefully, with the vaccine the resolution of the Covid crisis is more predictable and closer than we might have thought last spring.

One of the important things that we and others have shown is that the sectors that are hit are very different. That is probably better than the same sectors being hit twice, in the sense that the shock is spread more over the economy. It would be good if that second shock could be avoided as much as possible.

On fiscal rebalancing and the path ahead, we talked about different phases in our report. We are in a joint phase at the moment where some sectors are still very locked down and disrupted. Areas like transport and accommodation are really suffering a lot, as are some other parts of the domestic economy. Also, the unemployment rate in a broader measure is still at 16% and is likely to remain quite high, plus there is a greater weakness in demand. That is going to be the challenge during 2021 and that is why we welcome and support the measures and stimulus that have been provided in budget 2021. That is why we think it is appropriate.

Further ahead, as the shocks unwind, the economy must adjust. Using our five-year scenario, and this is why it is useful to do a five-year forecast rather than a one-year forecast like the Department of Finance did in the budget, we see the extended budget scenario. We take the budget numbers and roll them out to 2025, assuming no policy changes, and end up with a deficit of approximately 2.5% of national income at that point. We then did another exercise and asked, while the level of debt would be much higher, what would one need to bring debt to the same downward path as it was in 2019. In that scenario, we see there is a need for some fiscal adjustment. It is important to say, which we said last spring and now say again, this is nothing like the severe austerity that we saw from 2008 to 2010. It is a very different situation and that partly reflects, as the Deputy has said, the better fundamentals of the economy going into this crisis, so that is welcome.

We see that there is likely to be some need for fiscal adjustment. In the mild scenario that we have, if things work out very well, it might not be all that big. If things were to work out worse it would be bigger. We see that there probably is a need for some fiscal adjustment but we think it is very manageable. What complicates it is the fact that there are a number of other factors going on at the same time. One is the need to reduce reliance on corporation tax. Another two relate to dealing with climate change and ageing. A lot of other pressures will need to be dealt with. It is not just a question of getting back into balance but getting to the right sorts of level.

The Deputy is right that Ireland needs to be very mindful of what other countries do in terms of growth in corporation tax and the kind of things where Ireland is either competing or reliant on what happens in other countries. At the moment we still are in quite a complex environment for international trade on which Ireland depends heavily as well. There are a number of issues that Ireland needs to navigate and manage well.

Another issue is public debt. As we have seen in the past the costs of being viewed as a relatively weak country can be very high. In the current environment, where the ECB is running a very supportive policy and Ireland is very much within the pack, this is a manageable concern. We also know that a lot of the debt has been issued for very long horizons. Even if interest rates were to rise rapidly that would not actually show up in the public finance numbers for some time but it would show up eventually.

There are a number of things that Ireland needs to look at, and what we argue for in our report, which are really medium-term issues. We do not see that there is a need for a sharp adjustment. We think that this should be done in a managed way that has a minimal impact on growth but helps the economy to get back on track and puts the debt ratio on a downward level thus bringing it back to a level that is more sustainable, less vulnerable to shocks plus, potentially, gives Ireland the ability to absorb another shock of the sort that we have seen in the past because we have seen how valuable it is to be in that position.