Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

I want to begin by offering my condolences, as always, to the families who have lost loved ones during this pandemic and to again pay tribute to all of those who are on the front line for our country in this time of great challenge.

I welcome the opportunity to update the House on the ongoing economic and budgetary situation. The necessary measures introduced to protect public health and to combat the spread of the Covid-19 virus have resulted in a severe contraction in economic activity at home and abroad. Recently, my Department published the stability programme update. We indicated in the debate in the House on that report that we expect the national income of our country to fall by 10.5% this year and, unfortunately, we expect approximately 220,000 jobs to be lost, with unemployment already peaking in the second quarter of this year. On the budgetary front, the general Government balance, as I indicated at that point, stood at €23 billion. That was on the basis of decisions that had been made up to that point and I indicated the possibility of it growing further beyond that, towards €30 billion.

Given the radically uncertain outlook we now face, it is very important that I emphasise the level of uncertainty that attaches to the figures I have just shared. I want to stress that the indications we have regarding the performance of our economy, particularly the budgetary indicators when expressed as a share of the national income, are currently in line with what we see unfolding internationally. All countries are facing very similar challenges. This is, of course, most evident in where we are with the number of people who have lost their jobs during this crisis. Approximately 460,000 citizens are now in receipt of income support from their employers through the temporary wage subsidy scheme and there are just under 590,000 recipients of the pandemic unemployment payment. Along with the 215,000 individuals on the live register, this means that 1.25 million of our citizens are in receipt of income supports from the State. In the longer term, this is neither sustainable nor affordable for an economy in which we have growth that is based upon a private sector that generates employment upon which we can then deliver the public services that we need.

We are seeing the change that is taking place in our national finances as a result of this change in employment beginning to have a sharp effect. Exchequer returns for April showed a deficit of €7.5 billion and, to date, the level of support to the economy from the Government amounts to more than €13 billion.

It is the right and appropriate economic policy for the Government to run a deficit when the private sector has experienced a demand shock of this magnitude. We are doing this so we can limit the loss of income for companies and employers, and to preserve economic activity and living standards in the face of this terrible shock. These decisions now, I believe, lay the foundation for a recovery at a later point. We, however, can only do this because of decisions that were taken in the management of our public finances in recent years, in particular the deliberate policy of gradually over time eliminating a budget deficit and then running to a budgetary surplus. This has given us the credibility and the capacity we need, as a State, to be able to borrow the level of funding we are now borrowing to respond to the shock that is being felt in every home and every parish in Ireland.

Moreover, the economic turmoil is the result of a public health crisis. It is the result of a public health decision, not the result of an economic decision. We are entering into this period from a position of strength. My approach has been to try to improve our public finances gradually in anticipation of a difficulty at a point in the future, but, of course, this kind of difficulty and its magnitude could not have been foreseen then.

We expect public debt to increase significantly this year, and that is appropriate and in line with what is being seen internationally. We can finance this at a very low cost at the moment, but I cannot ignore the reality of constraints that will emerge at a point in the future, whether they be budgetary, whether they be monetary or whether they be decisions that need to be made by a future Government. The Taoiseach and I have both pointed this out recently. We know only too well what can happen if sentiment towards a country changes, and it is very important that our budgetary position in the future does not become an outlier versus the experiences of other countries.

As Deputies will be aware, the gradual unlocking of our economy began on Monday. However, it is already very clear that the new economic normal will be different from that of the old. Activity in some firms, including, of course, in our hospitality sector, is likely to be below capacity for some time to come. This will necessitate the kind of supports that are now in place. Some firms and some business models that were viable pre-Covid-19 may no longer be viable in the future, so the priority for this and the next Government must be to galvanise our resources to support companies and employers to be in a position to succeed in this new environment.

On 2 May, the Government agreed a further package of measures to support businesses negatively affected by Covid-19 to accelerate their readiness for dealing with this new reality. The House is already familiar with what they are: the restart grant, the commercial rates waiver, delivering and developing the pandemic stabilisation and recovery fund, getting the legislation ready for a credit guarantee scheme, and the warehousing of tax liabilities for a period of up to one year following the recommencement of trading. These measures complement the previously announced measures that mainly, though not exclusively, focused on households and employees.

We have the ability, because of these measures and because of the agility and entrepreneurship at the heart of the Irish economy, to rebuild from this crisis. Protecting those who have seen their lives and their livelihoods upended is the most responsible course of action the Government could take, and this is what we have done. However, these measures that we have introduced, which we can sustain for a period of time, cannot and will not last forever. They are appropriate at this phase of the pandemic and the budgetary impact of these measures that we have taken during this crisis will, in large part, be addressed by our citizens going back to work. However, it is an inescapable reality that there will be a cost to the State from these measures and these costs will have to be addressed.

Responsible budgetary policies over the medium term will do much of the heavy lifting. Sustainable and steady increases in public services and living standards underpinned by sustainable steady economic growth is the best way of correcting the budgetary challenges we will have.

I need to remind the House that while there has, understandably, been a huge focus on the pandemic in recent weeks and months, it is also the case that this is not the only challenge facing us. Negotiations between the EU and UK on a future relationship are ongoing. The current transition will end on 31 December unless a decision is taken jointly to extend it. Overall, the interplay between the economic impact of the pandemic and the possible end to the transition period without a future trading relationship being in place, or with a limited trading relationship being in place, will have significant implications for our economy and our public finances. Just as the Government, with the support of the House, has to be ready for these scenarios, I also emphasise, unfortunately, to businesses today, that our period of preparation for dealing with reopening our economy and the consequences of Covid-19 must also have an eye to where we all could be in dealing with Brexit towards the end of the year.

While I am aware of how great the risks are, and the level of uncertainty in companies and families and with our citizens today, I have little doubt that we can rebuild our economy and get our citizens back to work and that we can yet again build an economy that is capable of meeting the needs and aspirations of all who depend upon it.

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