From top at left: Taoiseach Micheál Martin; Tanaiste Leo Varadkar; and Minister for Finance Paschal Donohoe following Minister Donohoe’s election as President of the Eurogroup last week; Michael Taft
The Government will be announcing its stimulus plan in the next few days. This will continue with the announcement of sectoral initiatives under the National Economic Plan to be announced in Budget 2021. We are in for weeks of doling out the dosh.
So here’s a wishlist – for stimulating the economy, giving people a voice in how we build a more socially-accountable economy while protecting households from poverty.
Some of these proposals will take a while to get off the ground (so best to start now). Some of these proposals might not work so best to continually evaluate and reform). But people and businesses are hurting.
Youth unemployment could be as high as 45 percent, with nearly 150,000 under 24s now unemployed. Grants and incentives to businesses to hire young people might help in some respects.
But such grants do not create new jobs; they just prioritise certain categories – which mean non-young-people get pushed back in the queue. The state needs to create jobs by directly employing young people.
A specifically designed ‘employer of last resort’ programme could be rolled out to provide for up to 25,000 – 50,000 jobs in time (here is how it can be implemented). Young people would be employed in non-profit civil society organisations and public agencies (local government, etc.) on full-time, two to three year contracts. These jobs would be integrated into training and education schemes.
Only the state has the ability to mobilise the resources to put people back to work while we re-structure the economy away from low value-added, low-pay activity to higher value- added, higher paid work.
Continue the Pandemic Supports
The Temporary Wage Subsidy Scheme (TWSS) should be continued on a sectoral basis into next year. Clearly, hospitality and non-food retail should be targeted along with other sectors. Enterprises outside the targeted sectors could also benefit on a case-by-case basis with clear benchmarks (reduced turnover, etc.).
This should be combined with continuing the Pandemic Unemployment Payment and the elevated Illness Benefit – until at least the end of the year when new, enhanced, income-related social protection payments could be introduced courtesy of Budget 2021.
Business groups are queuing up for subsidies to re-open and stay open. This is understandabl, given that many sectors will continue to suffer reduced demand owing to the health crisis (customer-facing businesses, sectors reliant on discretionary spending).
The Central Bank Governor put the cat among the proverbial pigeons, stating that tax breaks such as VAT cuts may not be the best way forward given that they are not targeted. I’d be inclined to agree.
A better way would be to focus on those businesses that have suffered a significant decline in turnover. The 25 percent loss of turnover that is used for eligibility for the TWSS could be used.
To create efficiencies and a new revenue stream for the state, grants could be based on the actual amount of turnover loss or the number of employees (in full-time equivalents). Subsidies could be based on either zero-percent loans or grants that are repaid through the tax system.
The latter would probably be more beneficial for firms, as they would only start repaying the loan when they have turned a profit; i.e. repay according to their means. Under a loan, you have to pay regardless of your ability to meet the payment.
If a tax-based grant system were used, the Government could apply a temporary VAT cut (one to two years) with the difference between that and the normal VAT rate being treated as a grant which would be repayable through the tax system.
Any sectoral initiatives, such as continuing the TWSS as suggested above or sector-based grants, should be accompanied by the establishment of sectoral committees comprising representatives of employees, employers, government and other stakeholders.
The last government established a Tourism Recovery Taskforce to propose measures to support tourism. This could have been useful but the Government hobbled the taskforce from the start by omitting to appoint employee representatives – the biggest number of stakeholders in the sector.
Sectoral committees would oversee the implantation of support schemes; draw up protocols (wages, working conditions, health & safety); report problems, etc.
In short, the sectoral committee would be a communication conduit from the ground to the policy makers and serve as early warning systems. A key function would be to ensure that public supports and subsidies benefit all stakeholders.
While the debate has been focused on business supports and how to wind down the pandemic payments, what about households? Many will be falling into debt, or more debt.
Many will be struggling, postponing key household repairs or purchases. Prior to the crisis, nearly a third of households couldn’t afford an unexpected expense; that level is likely to rise with the Covid-19 crisis.
For instance, according to the St. Vincent de Paul, quoting a Social Finance Foundation research paper:
‘ . . . there are an estimated 330,000 customers of moneylenders in Ireland, with an average loan size of €566. The majority of customers are female, in the lower socio-economic group and between 35 and 54 years of age. Most commonly loans are offered over 9 months at an APR of 125%.’
So why not offer a scheme (either a new one or retooling existing ones), operated though the credit unions or the Money Advisory Budgeting Service, which would roll up all such loans, redeem them and put people on a more sustainable interest rate/repayment schedule?
Such a scheme could be expanded to households facing rent, mortgage and credit card arrears. There would need to be provisions to prevent moral hazard.
This could be complemented by an extension of the rent freeze and moratorium on evictions. These steps, along with continuing pandemic payments until new social protection payments are introduced, should help households which are waiting for a return to full employment.
The Central Bank Governor sent another cat into the pigeon nest, calling on insurance companies to be more ‘consumer-centric’ when it comes to paying out on business interruption claims.
He identified three situations: contracts that didn’t have a business interruption clause, those that did, and those where the position was uncertain.
There’s a very easy way to resolve this: establish a binding arbitration panel through which businesses could pursue their claims, avoiding costly and length court proceedings.
The panel could rule that insurance companies must honour the claim in full (where it is obvious) or in part (where the situation is uncertain). Similar arbitration panels could be established for commercial leases though which tenants could make a claim for relief; ditto for residential mortgages.
These shouldn’t be treated as strictly private contracts. Society has a stake in these claims as they impact on employment, incomes and economic growth. Therefore, there is a legitimate public interest in resolutions that serve the social good.
New Asset Tax
The Government could announce that it will be introducing a net asset tax in Budget 2021 and set up a process of consultation on the best design. A net asset tax, or wealth tax, would impact on the highest income groups and to ensure that everyone contributes to crisis resolution.
In any event, the super-rich seem to be warming to the idea. 88 billionaires wrote a letter to their respective governments calling for higher taxes on themselves:
‘No, we are not the ones caring for the sick in intensive care wards. We are not driving the ambulances that will bring the ill to hospitals. We are not restocking grocery store shelves or delivering food door to door. But we do have money, lots of it. Money that is desperately needed now and will continue to be needed in the years ahead, as our world recovers from this crisis.
‘So please. Tax us. Tax us. Tax us. It is the right choice. It is the only choice.’
* * * *
That’s my wish list: getting young people back to work, continuing supports, rolling out repayable grants, giving workers a say, supporting households, arbitration panels to help the productive economy, and a new asset tax.
There will be other and better ideas. So it’s important to keep up this conversation. Because while there will be an announcement next week of Government measures, this will only be the start, with the National Economic Plan and Budget 2021 coming in the next few months.
Michael Taft is a researcher for SIPTU and author of the political economy blog, Notes on the Front. His column appears here every Tuesday.