The total cost of direct Covid-19 related spending to the state across 2020 and 2021 is estimated to reach €28 billion by the end of this year, the Minister for Public Expenditure and Reform has said.
Addressing the Institute of International and European Affairs this morning, Michael McGrath also said the deficit for this year is expected to be similar to last year’s figure of €19 billion.
“It is entirely appropriate that we have acted to support the economy in these circumstances, and this has been greatly assisted by the approach taken by the European Central Bank in its response to the pandemic,” he said.
Michael McGrath added that the Government is committed to restoring the public finances to a sustainable trajectory and ensuring the country does not become an outlier as it emerges from the pandemic period.
He said the Stability Programme Update to be published next month will set out forecasts for the period up to 2025, while the Summer Economic Statement will present a strategic view of the public finances.
“By that stage the vaccination programme will have advanced very significantly, the impacts of the UK’s departure from the single market will be better understood, and the full effect of Covid on the public finances will be more complete,” he said.
He added that development of the National Economic Recovery Plan is well advanced and it will outline how Government plans to help people to return to work and to support sectors disproportionately affected by the pandemic.
Any future phasing out of existing supports will be difficult, the minister said, and will be done in a careful and gradual way.
He said the current supports will remain for another quarter to the end of June, and well in advance of that the Government will signal its plan for beyond that time.
“We do recognise just how valuable those supports are and any rapid or sudden reduction or removal of those supports will simply result in a lot of the employees currently being paid in part through the Employment Wage Subsidy Scheme being let go and transferring onto the PUP,” he said.
He added that it is too early to write off certain sectors and businesses and firms that were viable up to a year ago “deserve the benefit of the doubt”.
Undoubtedly, he said, Covid has accelerated certain trends and certain changes in the consumption patterns and that picture is evolving and will reveal itself over the months ahead.
“But what we outlined yesterday I think is a sensible roadmap for the gradual reopening of the country over the months ahead,” he said.
He added that by July we will have the prospect of a summer very similar to last year with a lot of freedoms.
Regarding possible changes to the international corporation tax system, Mr McGrath said it concerns him when he sees some critics continue to focus on issues that have been addressed and that belong in the past.
“I would ask people to acknowledge the reforms we have undertaken as a country in relation to our corporation tax code and the positive role we continue to play at OECD and EU level in addressing tax challenges that arise from digitalisation and indeed from globalisation as well,” he stated.
He said in the absence of an agreement at OECD level, then it is possible individual member states in the EU would seek to proceed on their own.
“But I think that would be less effective than countries acting collaboratively,” he claimed.
He said even if agreement is reached through the OECD process, it would pose a challenge for Ireland.
“But nonetheless it is still in Ireland’s interests that agreement would emerge from that process,” he added, because if member states act alone it will be easier for large corporates to “work around” that.
The impact of the pandemic and the growth of remote working on future Foreign Direct Investment is an evolving situation he said, but he added that the Government wants companies investing here to demonstrate a clear commitment to the country by having the strongest possible presence here, with physical facilities and key decision-makers operating in the jurisdiction.