Varadkar stresses wisdom of managing public finances ‘soundly’

The Tánaiste has said the framework for the upcoming National Economic Plan would have to be based on the wisdom of managing the public finances soundly.

Launching a stakeholders engagement workshop for the strategy – due to be published next month, Leo Varadkar said the State had entered the pandemic with the public finances in good shape, a budget surplus and a Rainy Day fund.

That coupled with Central Bank policies has allowed the state to borrow the funds it needs this year and will allow more be borrowed in 2021, Mr Varadkar said.

“But fundamentally we can’t move away from the wisdom of managing our public finances soundly because the debt that we are incurring will have to be refinanced and rolled over, perhaps in ten or 20 years time,” he said.

“And the deficit we will have in 2022 and 2023, we will have to borrow to cover that and we want to make sure we are able to borrow and those interest rates are low,” he said.

“We need to make sure we keep our public finances sound and have a trajectory to reduce the deficit over the next couple of years,” he added.

Mr Varadkar said the Government does not want to be the country in the Europen Union with the strictest adherence to the fiscal rules, but wants to be in the pack, mid-table in a group with peer countries.

Mr Varadkar said a big focus of the five-year plan will be strategic investment in areas that are all about the future, like digital transformation, climate action, as well as skills and education.

He said the plan also needs to build resilience across enterprises and sectors to ensure the economy and society after the Covid-19 pandemic is better than the one we left behind.

On Brexit, the Tánaiste said it will not all end with or without a free trade agreement at the end of the year. 

He said the relationship the EU will have with the UK will probably be more like the one it has with Switzerland, adding that hopefully it will not be like the one it has with Turkey with ongoing treaties, tensions and issues.

“This is not just one event, it is going to be an ongoing new set of relationships with the UK,” he said.

“This is going to be a new climate we are going to have to manage politically for the next ten, 20 years.”

Mr Varadkar also said the carbon transition would pose challenges as will geopolitical tensions, including likely changes to the international tax landscape which is favourable to Ireland at the moment, but is unlikely to be so as much in the future.

“We need to get ahead of that and make sure we are part of the solution to any changes that happen international taxation rather than trying to pretend they are not going to happen, because they are,” he said.

There will also be a move away from free trade towards protectionism in large parts of the world, the minister warned.
“Protectionism is on the march again in Europe, with the UK gone and France and Germany, particularly France, in a more influential position than it was,” he said.

It is also a feature of US politics, he stated, and a change of administration there, whether it happens or not in January, will not mean a fundamental change in trade policy he predicted.

“It might be a better behaved administration in the way it conducts its business around the world, but I don’t think it will be back to the old America, it won’t be the America of Obama or Clinton in any way, in the way it sees its place in the world,” he stated.

He also forecasted that the pandemic could change the pecking order in the world, with Europe, America and India emerging weaker and China much stronger as it has returned to normal economic activity much more quickly.

“But it was their system, not a democratic system, that allowed them to achieve many of those things, and there will be people in the world, outside of America and Europe, who will look to China as the model for their country in the future, who might have looked to Europe or America in the past,” Mr Varadkar said.

Away from the challenges, Mr Varadkar singled out climate action, digital transformation, new ways of working and the reimagination of cities and towns as some of the opportunities that the plan could consider.

He said it was totally unfair that those who work in the private sector had been more adversely impacted by the Covid pandemic than those in the public sector and that raises the bar to ensure the new economy that is built has a higher floor for everyone.

“That threshold of decency below which nobody can fall should be higher,” he said.

Also speaking at the consultation launch, the Taoiseach said the plan will describe the country’s vision for the post-Covid future of the economy and society, setting out where we want to get to post-crisis, the policy approaches needed to get there and the associated trade offs that will be faced along the way.

He said at present it can be difficult to see beyond the immediate challenges to look ahead to a different future and it is critical that we get the balance right.

An important aspect, he said, would be how to make the future more inclusive.

“Today is an opportunity to be philosophical, and to look beyond the fog of uncertainty in the current environment and to begin to reimagine a very different future,” Mr Martin said.

The Tánaiste also said that investment in education and skills will be prioritised as a “critical driver” for future growth and prosperity in the National Economic Plan.

In his closing address at a stakeholders engagement workshop for the strategy, Leo Varadkar acknowledged the impact the pandemic has had on younger people, due to the disruption to education and disproportionately high job losses.

“For people in their 20s, they have experienced two severe recessions in a relatively short lifetime. Our labour market policies are going to focus on ensuring that younger people can return to employment and reach their potential,” he said.

Mr Varadkar appealed to employers to keep as many workers on their books over the next six weeks, by availing of Government supports such as the enhanced Employment Wage Subsidy Scheme.

For businesses forced to close due to Government order, the Tánaiste said he wanted to remind such businesses that the Covid Restriction Support Scheme will open for applications this week, and will help such businesses to cover the fixed costs of staying closed.

Also speaking at the closing address, Minister for Finance Paschal Donohoe stressed the importance of the National Economic Plan.

“It is so important as we are navigating our way through a world that is changing so quickly, that we have a reviewed and renewed sense of what kind of economic model we want to move to and what kind of change is going to be necessary in how we organise and plan our economy,” he said.

Minister Donohoe said as we look to the future, we need to acknowledge that we are living in a very different world now.

“We are a small, open, highly globalised economy, but the nature of that globalisation is now changing week by week and month by month,” he stated.

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