‘Economic suicide’ to impose austerity after Covid-19 crisis passes

‘Economic suicide’ to impose austerity after Covid-19 crisis passes

A return to austerity after the Covid-19 crisis has passed would be “economic suicide”, experts have warned.

The country’s leading economists also said that tax cuts 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 cuts in public services or higher taxes 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,” Mr Power said. “Whenever the lockdown 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 lectures on economics at UCD, said 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. This is a health crisis. Applying an economic prognosis to a health crisis is a waste of time.”

Mr Varadkar hinted that tax cuts could be a future government response to recession. Mr Power said the focus should be elsewhere.

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

“That’s kind of the approach that has been adopted at the moment, but the risk would be if we come out of 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.”

Andrew Webb, chief economist for Grant Thornton, said society would not “stomach” austerity again.

“We’ve seen how the taps can be 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,” said Mr Webb. “ It’s hard to see the economy bounce back just as quickly as it turned off, without some sort of stimulus.”

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