Depression-type fallout will cost 10 years of cuts, inf lation and tax rises
Top economist predicts Ireland must endure a ‘painful decade’ to pay for crisis
THE cost of paying Ireland’s coronavirus bill will mean a decade of tax increases, cuts in Government spending and rising inflation, a leading economist warned last night.
‘Austerity will come – taxes will rise,’ Professor Richard Tol told the Irish Mail on Sunday.
‘In 10 years’ time we will still feel the pinch of this thing – maybe longer. This will be a painful decade,’ the former Economic and Social Research Institute (ESRI) economist predicted.
The comments come as the International Monetary Fund (IMF) this week warned the world is on the brink of the worst economic crisis of the past century.
‘We anticipate the worst economic fallout since the Great Depression,’ said IMF chief Kristalina Georgieva.
The IMF – which is due to release its World Economic Outlook on Tuesday – now expects virtually every nation to experience a sharp decline in per capita income this year.
Even in a best-case scenario, it only expects a partial recovery next year.
This week the Central Bank estimated coronavirus measures would cost Ireland €21.8bn in lost tax and additional emergency spending – if a lockdown lasts 12 weeks. But no one yet knows the full cost and many – including the ESRI – predict the bill could surpass €30bn.
That’s equivalent to the combined budgets of the departments of Health (€17bn), Education (€10bn) and Justice (€2.8bn) last year.
And, in the short-term at least, it will be paid for from a drastically reduced tax take as previous debts – standing at €10bn at the end of 2019 – remain due.
Mr Tol, now professor of economics at the University of Sussex, said the crisis will mean more tax, less Government spending and inflation.
‘There’s talk about a wealth tax but it won’t be enough. Things like Vat and income taxes will also have to go up,’ he said. ‘There won’t be any money for nice things, so Government will have to cut back on spending – that’s austerity. Or they’re going to finance it by printing money and that means you can keep your salary but prices are going up so your salary is not worth as much as it used to be.’
Despite this grim prospect there is no other choice, he warned.
‘We need to keep families fed. We need to keep companies afloat,’ the professor added.
‘The Government is borrowing large amounts of money and that may last for a relatively long time and it will have to be paid back.’
On a global level, Mr Tol predicted humanitarian calamities in India and Africa.
‘The situation in places like India, Bangladesh and Nigeria will be absolute desperate,’ he said.
‘If you live from hand to mouth and your daily salary pays for the food on the table and there are no reserves, those people are really, really hurt by this.
The famines haven’t emerged yet but they will.’
Mr Tol said Ireland had done well so far in tackling the crisis, compared with other First World nations. ‘Ireland has done a decent job but this is a very tough thing to crack,’ he added. ‘The US is in deep trouble; in the UK there was denial for too long.’
Finance Minister Paschal Donohoe said it was ‘very possible’ – subject to evaluation – that Ireland would access a €500m EU rescue package agreed on Thursday.
As he spoke UK department store Debenhams entered liquidation with the loss of 2,000 jobs – the first of many expected business failures on the horizon.
‘What is also different versus other difficulties we successfully dealt with in the past is the huge speed with which that change has happened,’ said Mr Tol.
‘All that being said, I’m confident our country can create a new economy to get us back to work, to get incomes growing again, to fund really good public services – but we have a journey ahead of us.’