The great recession of 2008 was characterised by private sector indebtedness.
The growth in the national debt from 2008 on was partially accounted for by the bank bailout, but primarily due to the need to continue social welfare payments and other state services and supports following the fall in tax revenues.
This time out the economic crisis from containing Covid-19 is not characterised by private sector indebtedness, but there will be perhaps an even greater impact on the public purse.
Many workers have become unemployed and other workers are in state-subsidised employment since the pandemic lockdown began to bite in mid-March and 40% of the workforce now rely in whole or in part on state support.
According to figures last week from the Parliamentary Budget Office, over 450,000 employees had received at least one payment under the temporary wage subsidy scheme.
A further 589,000 employees were availing of the pandemic Unemployment Payment, and over 40,000 were receiving Covid-19 related illness benefit.
While the impact of these unemployment and wage subsidies on the tax take is obvious, it also has a very big effect on how we make provision for social welfare.
About half of all payments made by the Department of Employment Affairs and Social Protection come from the State's Social Insurance Fund.
This fund has a special status within the system of government spending and is built up from PRSI contributions by employees and the self-employed alike.
PRSI is not treated as a tax and rarely features in the national debate as it is not included in the tax revenue figures.
It's extraordinary that we can seem to overlook a levy that was due this year to bring in €1 billion per month for the Social Insurance Fund. It's highly unlikely that the €12bn annual target will be met for 2020.
The employers’ PRSI contribution is reduced to a token amount where the wage subsidy scheme is operating, and the amount of overall employee and self- employed PRSI is down because incomes have dried up.
Yet, the demands on payments out of the fund have never been greater.
The Social Insurance Fund is never allowed to run dry.
In good years, PRSI receipts are enough to keep the fund in surplus.
If the fund falls into deficit, it is topped up using general taxation receipts.
That last happened in the years between 2008 to 2015, but the fund has been running at the surplus since then thanks to the high levels of employment.
Because over 1 million people are benefiting from pandemic unemployment and employment supports it is entirely possible that the fund will go into deficit in 2020.
A fund deficit will lead to greater pressure on the government borrowing requirement.
The deficit will get added to the list of the bills which the State will have to pay that cannot be covered by 2020 tax receipts.
It will also add to the political debate and the discussions on government formation, because the deficit will bring back into sharper focus the controversy on the retirement age.
In normal years, contributory social welfare pension payments make up nearly three quarters of all the cash paid out the social insurance fund.
When the fund falls into deficit, the pressure to reduce this bill will become acute.
The state pension is currently payable from age 66, and whether it should be increased to 67 next year became a hot topic at election time last February.
The impact of Covid-19 on how we fund social welfare pensions will turn the heat up again.
- Brian Keegan is director of public policy at Chartered Accountants Ireland