Tony Foley: Prudent to plan for a Covid-19 hit to the Irish exchequer of €30bn

The coronavirus is causing enormous economic damage in Ireland and globally and the bill will be much greater than most people expect, writes Tony Foley.

The coronavirus is causing enormous economic damage in Ireland and globally and the bill will be much greater than most people expect, writes Professor Tony Foley

Economic crises are nothing new to Ireland and in time normal economic life will eventually resume and there have been economic triumphs too.

Total employment in late 2019 was over 2.36m and the Government recently referred to 400,000 job losses in hospitality, retail, childcare, and tourism, and quickly updated the number to 500,000.

The final outcome will depend on the duration and intensity of the virus here and around the world.

But the employment decline will significantly exceed 500,000 and will be over 600,000. And if the authorities have to implement a complete shutdown, the employment losses will be higher.

At the extreme end, the only economic activities that could be left standing would be the socially essential sectors of agriculture and fishing, food production, medicines and medical equipment production, security, utilities, some distribution and transport, supermarkets and food shops a few other retail outlets, as well as some public administration, and financial services.

Those areas account for about 900,000 jobs but as a contingency, we should be planning for 700,000 job losses.

However the scale of such job losses will hopefully be for a short period and assuming a gradual decrease of 100,000 a month from July, job losses amount to just under 400,000 on an annual basis, or a 17% drop in the 2.36m employment level.

Supermarkets as we have seen in the past week benefit from the increased food sales diverted from pubs and restaurants and add jobs.

Makers of medicines and medical equipment and the health sector will significantly increase their job numbers.

The hit on the public finances will be substantial and far greater than anything currently expected.

Government expenditure will increase because of higher unemployment payments, greatly increased health expenditure, security-related expenditure, and from compensation payments for virus-related losses, supports and incentives for economic stimulation, as well as other social supports.

The Government expected to collect €63.5bn in tax revenue this year before the virus hit.

A 15% fall in tax receipts would amount to €9.5bn.

Increased expenditure could amount to €12bn, including unemployment payments (€5bn), additional social supports (€2bn), additional health expenditure (€2bn), and support for businesses (€3bn).

The total hit to the public finances is almost €22bn, but not including any provisions for the Government to increase the current unemployment payment rates or support for significant business or personal debt and bills.

It also does not take into account the possible introduction of measures adopted in other countries such as subsidies to wages.

All in all, it would be prudent to think of the public finances worsening by up to €30bn.

You will recall Mario Draghi, former president of the ECB, saying he would do whatever was necessary to save the euro.

We need a similar approach to economic recovery from the virus.

We also need to ensure that the economic costs of the virus are equitably distributed.

For example, restaurant staff receive unemployment payments due to the closure but many public servants in closed organisations continue to get full pay

Tony Foley is emeritus associate professor of economics at Dublin City University