The 2020/ 2021 Budget is not behind us. It’s what we’re facing into, in its impact on our society, our politics – now irrevocably changed – and our world.
The world seems very close, pressing in on us, spooked by uncertainties and fear. Economic fears, certainly. But also deeper fears that, somehow, what is happening doesn’t quite add up, a kind of dissonance. Seamus Heaney can always be relied on to strike a note of earthy wisdom and the Minister for Finance duly dispatched the speechwriter to unearth a quote from the Master to bookend his Budget speech: “If we can winter this one out, we can summer anywhere”. But in truth, there was an element of whistling past the graveyard.
We are a small part of a world mired in a place it had never thought to be. To give you some idea, the IMF estimate that “the cumulative loss in output relative to the pre-pandemic projected path is projected to grow from $11 trillion over 2020-21 to $28 trillion over 2020-25..” That’s huge. This, they point out, “represents a severe setback to the improvement in average living standards across all country groups” – and a seismic shock to expectations.
In other words, its a very long way from where we were at the start of the year to where we are now, in the suddenly Autumn of the year. Beyond hard-hit developed economies brought to a sudden stop by lockdowns, the malign dynamic of Covid-19 will push 150 million more people into extreme poverty by 2021.
So, the scale of Budget 2021 is no more than was necessary – the question is, will it be enough? What will the price be–and the longer-term legacy?
Ireland is vulnerable to a triple whammy. The first is Covid-19, which brought the economy to a sudden stop– like the brakes suddenly applied to a car doing a steady 70 mph. Then there’s Brexit, as we brace for a kind of uncoupling from our nearest neighbour with whom we share an Island.
“No deal” or a “Skinny -Deal”, Brexit was always going to leave skid marks on the tarmac and gaps in the ditches. But on top of these, there is the impact of the coming radical shift in / Foreign Direct Investment (FDI), on which Ireland is dependent. Every single MNC is reassessing its business model in the wake of Covid-19 and in anticipation of changes in the OECD corporate tax regime. That will hit us at every level, from inflows into the exchequer to the loss of high-tech jobs.
With the IMF warning countries of the overriding need to sustain jobs, enterprise and social solidarity – and not to withdraw fiscal and monetary stimulus prematurely – a massive Keynesian-type Budgetary injection was inevitable.
It was duly delivered, in an unprecedented €18b package. It was empowered by an extraordinary range of fiscal supports and monetary easing from European and globally. We have not seen the like of these before– nor have we thought through what they signify about the magnitude of the threats facing our interdependent global economy. Bear in mind that less than12 months ago EU Governments were trying to shoehorn budgetary deficits back under 1 percentage point: now there is a tsunami of funding, swirling through capital cities.
The Bank For International Settlement (BIS) – that most erudite of global institutions – summarized perfectly the interventions that made Budget 2021 possible:
“Fiscal and monetary stimulus were deployed on an unparalleled scale to cushion the blow (of Covid-19). Asset purchases, interest rate cuts, provision of public guarantees and payment deferral programmes stabilised (financial) markets and provided much-needed liquidity to affected individuals and firms”
And so Budget 2021 provided for a continuation of supports for household incomes (PUP) and business supports including Brexit-related funding through an Economic Recovery Fund and a Contingency Fund.
Domestic politics also played a role in the shape and substance of the Budget. The general public had lost faith in both of the main parties to deliver on Health and on Housing– and back in February it cost them the General Election. Not that it stopped Ireland’s political Hegemon putting a headlock on political power. But with no restrictions on Budgets or borrowing – on fiscal deficits or national Debt – it was a unique opportunity to demolish the opposition aka Sinn Fein, which they duly did.
God knows we need more houses – homes for young couples who would like to get married and Social Housing.
Much of the extra spend on Health is a ‘catch up’ on systemic underfunding, especially on the capital side going back years. We were badly caught out by the shortage of hospital capacity and especially ICU and critical care beds. We should not have been– there were Reports and warnings that went unheeded. Even so, investment in capacity and in additional medical manpower is necessary and welcome. Importantly, there is additional funding for dealing with non-elective services, across core specialties, that have been “crowded out” by Covid-19. Every medical Consultant, every nurse and midwife and every hard pressed GP across the country will confirm that “treatment deferred” is often treatment denied.
Ireland’s Third level has done extraordinary work in migrating to a virtual learning environment. The €250 payment to students catches the eye. But the systemic impact of Covid-19 on the funding and mission of Universities and Colleges is so pressing that more investment in teaching and research was needed to adjust and to consolidate what is a paradigm shift into our children, and our children’s children, future.
But behind an acknowledgement of what was delivered, and even what might have been done, there is a deeper and disquieting reality.
Budget 2021 represents a massive expansion, direct and indirect, in the size of the state. It pushes up our national debt towards €250 billion, well beyond 100% of GDP. Even though Central Banks have signalled that borrowing will be enabled by historically low interest into the foreseeable future, this level of debt reflects increased vulnerability.
Budgetary largesse is easy, but Ireland’s recent history demonstrates just how difficult it is to claw back when, and if, there is a recovery. Because there will be no return to the status quo ante. “The past is a foreign country”. Too much has changed. Even with the scale and reach of the Budget, many more jobs will be shed in addition to the 320,00 that have already gone. A new kind of economy is emerging.
Here in Ireland, we have become a morally impoverished, economically dependent people in a de facto one-party secular state.
It says much about the state of political life that the ‘messengers to the Dail’ – our Dail, not theirs – would choose to pass euthanasia legislation during a pandemic, even as those most vulnerable to that legislation – the old and the weak – are those most at risk to Covid-19. Tone deaf.
In any event, Christmas is coming. From here, it bears a striking resemblance to what the first one must have been like, a light for all nations in a cold and pagan world dominated by a distant imperialism.