Budget measures costing €6bn is needed far into next year to help the economy ravaged by the Covid-19 crisis, and further spending will be required should Britain crash out of the EU with no trade deal in December, Ibec has warned.
In its budget submission, Ireland’s main business group said it still has hopes for a strong economic rebound but that unemployment will be a significant problem for some time to come as the health restrictions hit Irish business hard.
Identifying the threat of the “cliff-edge” to Irish firms when the new wage-support schemes next year, Ibec seeks graduated increases in the cut-off threshold above 70% of turnover.
A cut to 9% in the Vat rate for tourism firms and pubs would help them return to profitability, it said.
The €6bn of measures include €1.5bn in spending for business sectors worst hit by the pandemic and €800m to bolster the balance sheets of firms.
Retraining and upskilling will cost €960m, part of a package of measures to “get people back to work” and to help provide some certainty to businesses to invest. Ibec also seeks support for carers and care firms.
It also favours €710m in spending to help the shift to a low-carbon economy and €750m for housing, health and regional development. The business group said it supports carbon taxes but urges the resources to be “recycled” to help firms prepare for the future.
Fergal O’Brien, director of policy and public affairs, said there were strong hopes the economic rebound will get underway but that supports worth €6bn will be needed nonetheless in October’s budget.
Ibec forecasts an unemployment rate of 12% at the end of this year, while the total hit to the exchequer from the Covid crisis will reach €50bn through 2022.
Chief economist Ger Brady said the economy was not fully on the path of recovery and supports will be needed until a vaccine is delivered by the second half of 2021.
Ibec stepped up its warning over Brexit. “It now seems likely that a no-deal outcome will be likely in December,” it said.
Preparations for a no-deal will be funded through “additional tariff revenue, the Brexit adjustment fund, and the existing Brexit contingency”.
“The full resources of the existing €4bn in Brexit contingency funding set aside for the years 2021 to 2025, any increased tariff revenue from UK imports, and funding from the EU Brexit adjustment fund will need to be brought to bear,” Ibec said.
It projects an annual budget deficit of €30bn this year and €15bn in 2021, before the deficit closes in 2023.
“Low borrowing costs mean that this can be sustained in the medium term as long as the growth path in the years of recovery is strong,” Ibec said.
“A strong growth path is the best way to ensure refinancing of debt is sustainable in the medium to long-term,” it said.
“But Ireland is now a developed country, our room for the ‘catch-up’ growth of previous decades is limited. The renewal of economic progress can only be achieved through concrete policy action,” said the business group.