Brian Keegan: New ways to manage economy will be needed

Last week, US president Donald Trump announced a new idea for the post-Covid-19 crisis recovery, writes Brian Keegan.

Taoiseach Leo Varadkar speaking in Government Buildings this past Thursday, where he briefed the media on the latest measures introduced in response to Covid-19. Picture: Leon Farrell/Photocall Ireland
Taoiseach Leo Varadkar speaking in Government Buildings this past Thursday, where he briefed the media on the latest measures introduced in response to Covid-19. Picture: Leon Farrell/Photocall Ireland

The president’s idea is to reintroduce a tax break for corporate entertainment, which he stated would generate new and additional business in the restaurants, hotels and sports and entertainment venues so badly affected by the restrictions on the movement of people.

At a time when almost every country in the western world is experiencing a surge in unemployment, ideas like this are, perhaps, for a different day.

However, new ideas and a new perspective on economic management will be needed post the Covid-19 crisis.

In the run-up to the general election here only two months ago, one of the burning issues was people’s retirement age.

Reinstating the state pension retirement age from 67 to 65 was regarded by many as too expensive with its price-tag of some €500m.

It was also seen, by some, as a policy step in the wrong direction when it comes to defusing the so-called pensions timebomb.

This timebomb arises because the ratio of the working population to the retired population may become too skewed to fund adequate state pension provision in the coming years.

Defusing the pensions timebomb is now among the least of our concerns as we focus on keeping the elderly safe and well.

Even if it was still on the political agenda, a pensions cost of €500m or so seems paltry compared with the additional billions which government must now pump into our social welfare system and business supports to get us all through this crisis.

This new perspective must have a lasting influence on the way we formulate public policy in the coming years. A return to austerity is something the Taoiseach has said is to be avoided.

Another key factor which will determine policy is the cost of borrowings.

Unlike in 2008, interest rates are low, and various measures currently under consideration by the EU institutions would create a pool of cheap money which affected countries could draw on to sustain social welfare payments and rebuild their economies.

Although the OECD has suggested the Irish economy might be among those least affected by the financial crisis caused by Covid-19, the effect here will be harsh.

The Parliamentary Budget Office is suggesting the deficit this year will be significantly larger than €4bn.

High national debt servicing costs limit the scope for social welfare and other benefits, and push up the demand for taxes, which in turn reduces available day-to-day spending.

The chaos and hardships being caused by Covid-19 are immediately apparent, but the medium-to-long-term damage of the epidemic to the quality of people’s lives will be greatly reduced if scarce resources do not have to go towards servicing a much larger national debt.

Attempts to secure cheaper finance, using the various European institutions, are not commanding the headlines now, but that does not make them any less important.

They will certainly be more important than tax breaks for corporate outings.

- Dr Brian Keegan is director of public policy at Chartered Accountants Ireland

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