Central Bank: ‘No need for austerity measures' to cover Covid recovery bill 

Bank’s director of economics and statistics Mark Cassidy said current Government Covid support measures are sustainable

The Central Bank doesn't see austerity as the solution to a post-Covid economic recovery.

There is no need for the Government to implement widespread austerity measures to cover the costs of the economic damage caused by the Covid pandemic, the Central Bank has said.

This is despite it saying, this week, tax increases – through income tax, Vat or carbon taxes – may be needed to help fund future Government spending. It said ongoing borrowing could hamper Ireland’s ability to deal with future crises by pushing the national debt to dangerously high levels. 

However, natural recovery in the economy will also help boost the State's coffers.

Asked directly by the Budgetary Oversight Committee if austerity is “off the table”, the Central Bank’s director of economics and statistics Mark Cassidy said there was no need for austerity and current measures being taken are sustainable.

Recovery

He said the various Government supports in place have significantly reduced the costs of the crisis and should remain in place into the second half of the year. He said the economy should begin to show a recovery if an effective vaccine rollout picks up pace in the second half.

Mr Cassidy said it would be “extremely unwise” to think about reducing supports now and it would be equally unwise to cut capital investment after a crisis as it could have long-term negative effects on the productivity of the economy.

He said the Covid supports may be able to begin to be tapered off later in the year when signs of a recovery are clearer.

Ultimately, however, he said actions taken would depend on economic circumstances.

Mr Cassidy also told the committee that while the Government needed to remain supportive to multinationals and maintain Ireland’s attractiveness to foreign investment, policy should be more balanced concerning the indigenous economy. 

He said SMEs suffered losses of up to €12bn last year, with nearly 20% unlikely to be able to meet their liabilities this year.