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BUDGET 2021: Unless the economy opens up we’re in serious trouble

An interesting aspect of the Budget was that it once again illustrated the minimal differences that exist across the entire range of political parties in Leinster House. Apart from the outlier of the People Before Profit demand for a wealth tax which they claim would deliver €3.5 billion, all of the arguing was over different rates of payments and tax.

If there is any significant economic and financial difference it revolves around how best to tackle the massive crisis unleashed by the Covid 19 panic. The three government parties, Sinn Féin and the far left all agree on key issues and with the pursuit of a zero Covid strategy with the far-left even framing their budget submission in the context of achieving “zero Covid.” Even their figure for proposed capital expenditure was little different to that outlined by Paschal Donohoe.

How exactly “zero Covid” relates to the financial running of the state is uncertain, other than the fact that all of the establishment parties see the economic crisis as one in which they best manage the economic crisis attendant on it; rather than display any imagination in releasing the energies that might not only address the severe implications of the restrictions, but would also go a long way to reviving the spirit of the people.

Crippling the domestic economy through the current regulations is not only vastly expensive but will have unforeseen detrimental impacts for quite some time if and when there is a return to normality. Accepting that the virus is here for another uncertain period, but opening up the economy especially through domestic small businesses which employ almost one million people in the state is an alternative that few here seem to contemplate, despite a shift towards such thinking at an international level among scientists and economists.

So while the Budget includes significant increases in public expenditure, it is a holding measure rather than one designed to encourage growth. I suppose in ways, it could be compared to the type of budgets designed to cope with severe recessions, except that this one has nothing to do with any underlying weaknesses.

Quite the opposite in fact, as the situation in the United States proved; where an economy in the midst of significant growth was potentially brought to its knees by the virus. The fact that it is now in the process of recovery, as are other economies which have taken a less restrictive approach, proves that Covid is not an insurmountable obstacle.

In the context of its reluctance to open up the economy, the Irish government could be credited with a reasonably balanced approach. But only in the context of turning its back on a more imaginative strategy.

There was a good case for restoring the original Pandemic Unemployment Payment. Other social welfare measures such as abandoning the raising of the pension age to 67, and the small increases in other payments were broadly welcomed. As were the huge increase in the health budget with the specific targets of increasing the numbers being tested, and the availability of hospital care, and the commitment to building 9,500 new social housing units.

The problem with all of that of course is that the delivery models are suspect. The state has consistently failed to use the massive health budget to bring about the required changes, and likewise housing targets have consistently fallen short. The opposition has no track record of presuming to do any better, and indeed the Sinn Féin fulminations against the coalition are hard to take seriously given their ineptitude in running the north.

It could also be argued that the ideological elements of the Budget act as a restraint rather than an incentive. That is particularly the case with regard to the increased carbon tax which will immediately add to the cost of petrol and diesel. All in pursuit of climate objectives that huge economies such as China’s do not even bother to pretend that they are making serious measures to attain. The criticism of the tax by Sinn Féin and the other left parties is hypocritical given that they are also furiously virtue signalling over this and with nothing beyond meaningless slogans to suggest any alternative to the economic costs such as are attendant on the carbon tax.

This Budget will arguably maintain most people at some level of pre Covid norms, but banking on an increasingly unlikely eradication of the virus prior to lifting economic and social restrictions is a recipe for disaster. If the current course is adhered to and if the economic impact worsens then the state’s ability to cope is going to come under massive pressure.

As with the overall approach to tackling the Covid crisis, we surely need more imagination and initiative rather than doubling down on a recession that shows no sign of turning around if current strategies are maintained.

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