The cost to the State of the Covid-19 crisis will likely reach €30bn this year should the shutdown of large parts of the economy extend beyond the current 12 weeks, leading economists have said.
Kieran McQuinn, research professor at the Economic and Social Research Institute, said the State can afford to fund the range of unemployment payments and business supports over a lengthy period from its own resources.
However, prolonged restrictions would likely require significant funding for businesses across Europe by the European institutions, Mr McQuinn said. He said that going beyond the 12-week period will need more support for many sectors, as well as additional expenditure if welfare payments are increased.
“Going beyond the 12 weeks also hits on the revenue side,” Mr McQuinn said, citing the evidence from the exchequer returns which showed the Government collected €1bn less than expected in Vat receipts in March alone.
“It is hitting both sides of the exchequer in requiring new business support and creating shortfalls in major revenue items,” and widening the budget deficit, Mr McQuinn said.
Income tax revenue will be down in the coming months, and “no one knows” what will happen to corporation tax revenue if the 12 week period is extended, he said.
The Central Bank this week estimated the cost to the exchequer of measures in 2020 will be €21.8bn, including the fallout loss of tax revenues and additional spending of a lockdown of 12 weeks.
“If you go beyond the 12 weeks, it is not just the additional expenditure but it is the reduction of the tax receipts that is going to cause a problem,” and the cost could reach €30bn under an extended lockdown, Mr McQuinn said.
“Even if people are allowed out they are going to be more cautious and I think there will be a significant drag effect,” he said.
The exchequer can afford to fund the measures but at a certain point of extended restrictions the public finances “come under strain
At the end of the crisis, companies across Europe will be carrying “lots and lots of debt” and the European authorities will need to act to ensure that growth is not held back.
“Ultimately, people have austerity fatigue across Europe after the financial crisis and there is no doubt when there are stringent economic conditions, it does lead to political fragmentation and it does lead to extreme political trends emerging across Europe,” he said.
Economist Jim Power said keeping tourism alive into 2021 will call for more exchequer spending.
“I have long thought that the €30bn cost would be the start of it,” Mr Power said. “When we come out of it, there will not be a sudden recovery and remedies will be required to help businesses,” he said.