Austerity measures post Covid-19 will be disastrous - economists

Austerity measures post Covid-19 will be disastrous - economists

Several high profile Irish economists have suggested implementing austerity post Covid-19 would be "economic suicide".

As government formation talks continue, both Fianna Fail and Fine Gael have informally agreed that austerity measures should be ruled out, on the basis that the public would not be able to handle further cuts ten years after the financial crash.

Economic experts agree, however, say tax cuts, which were floated by Taoiseach Leo Varadkar as a way to jump start the economy, are not advisable.

Jim Power, former Treasury Economist at AIB Group and former Chief Economist at Bank of Ireland, said any cut in public services or higher taxes as the country rebuilds after the pandemic would drive the country into depression.

"If you start increasing tax to get finances back in balance, you will destroy any possibility of recovery," he said.

"Whenever the lock down ends, households and businesses are going to be in a serious state of poor health, imposing austerity in those circumstances would be tantamount to economic suicide.

"We will need to make sure that all of those businesses are still around to pick up the pieces, part of that is supporting households to make sure that they remain financially viable."

Mr Power, who now lectures on economics at UCD, says he is more concerned by what the country is facing post-Coronavirus than he was during the last recession.

"We have no idea when this will end, that was an economic and financial crisis," he said.

"This is a health crisis, applying an economic prognosis to a health crisis is a waste of time."

Leo Varadkar hinted that tax cuts could be used by a future government in order to respond to the oncoming recession, however Mr Power says focus should be elsewhere.

"Tax cuts would not be top of my agenda at this point, to me what's essential in the short term is that businesses are given every support possible to keep them alive," he said.

"That's kind of the approach that has been adopted at the moment, but the risk would be if we come out with a lockdown that suddenly all of those supports for households and businesses are ended, that cannot be the case, there would have to be strong remedial support given to households, and business for at least the next 12 months."

Jim Power
Jim Power

Likewise, Andrew Webb, Chief Economist for Grant Thornton said that society would not "stomach" austerity again.

"We've seen how the taps can turned on when they need to be, and to then come off the back of this and say 'We're all in this together, we need to tighten our belts', it just feels like it wouldn't fly with society," he said.

"Austerity was a choice, and there are options there in terms of how not to do austerity.

"The big fear is that we don't have that V-shape (bounce back) that people are hoping for, we're undoubtedly going to have a massive contraction.

"It's hard to see the economy bounce back, just as quickly as it turned off, without some sort of stimulus.

"It's really about what can the government do to jump start everything as quickly as possible.

"I don't think long term, given the amount of money that's had to the expended on this crisis, tax cuts would be a long term game plan.

"I think at some point we're going to have to think about getting over the amount of stimulus that it is going to take to nurse the economy, so there will have to be choices around how to do that.

"Possibly looking at increased tax in a fair and balanced way, that could touch on corporation tax rates, or other taxes, but I think if it's a choice between austerity and other options, I think other options should be looked at well in advance."

Mr Webb also says the Coronavirus has exposed gaps in provision as a result of austerity, and will force a national conversation about priorities.

"Without using language like chickens coming home to roost, if you don't invest in your health service and there comes a time like this when you really need it, it exposes those gaps in provision," he said.

" I think there will be a shift in the national conversation that wouldn't be misplaced around where our priorities are.

"I would say austerity is definitely something that wouldn't be stomached because a decade of austerity probably put our public services in this place where they struggle with the scale of demand."

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