The cost of Covid-19... and how we will ALL end up paying
The pandemic will put a €50bn hole in the country’s finances – and there’s no easy solution
TAOISEACH Leo Varadkar recently compared figuring out the cost of Covid-19 and the scale of any recovery to astrology. The cost is certainly astronomical – and dependent on the vagaries of viral medicine. Can we build immunity? How soon can we create a vaccine? And will social isolation work?
We’ll have to wait until the dust settles to figure out the final tally but let’s look into the crystal ball to see what it will mean to our pockets, who will lose out most – and will there be any winners amid the economic carnage...
How much will Covid-19 cost?
The Goverment will have to borrow €23-€29bn extra this year and another €14bn next year.
That’s a total turnaround of around €40bn over two years compared to the small surplus we enjoyed last year.
But those devasting numbers are already out of date with unemployment higher than expected and a €6bn business rescue plan announced since then. Employers group Ibec is calling for another €15bn to save the economy.
So we’re probably looking at a €50bn bill at least – and it could soar higher.
So how on earth are we going to come up with the money?
We are going to borrow it – and pay it back for generations to come – on top of the already-huge €204bn national debt. The extra cost of servicing the debt would be in the region of another billion a year.
Fine Gael and Fianna Fáil indicate that taxes won’t go up but spending will. Can we believe them? No! Now more than ever, political promises should be taken with a pinch of salt. The Programme for Government is pure fantasy.
Over 90 per cent of personal taxes are paid by only around one million people – the squeezed middle. The cost of Covid will be an added burden of around €40,000 for every one of those households.
It’s inconceivable that we can suffer the worst downturn in decades (and some say 300 years) without paying a heavy price. Brace yourself to be squeezed even more. Even if the main tax rates don’t go up, there are always stealth taxes – or new ones – politicos dream up to balance the books.
Will I get my job back?
Reports are leaking out of Government that up to 300,000 jobs are feared to be lost in the longer term. That sounds horrific but alas it does tie in with other international reports suggesting a 10 per cent permanent loss in the labour force (ours was 2.7m before the crisis).
Where will there these job losses be?
Retail, tourism, hospitality entertainment and the arts. Anywhere large groups of people gather, basically. The whole world has received the fright of its life that will change us permanently. We will avoid spending money. And the fear of crowds and travel that has been drummed into us will not fade quickly.
The UK fears that up to 40 per cent of stores are under threat. Many have already gone bust. In China, long into recovery mode, spending in restaurants and hotel stays are still down by 40 per cent and 70 per cent respectively.
According to The Economist, Chinese bankruptcies are high and unemployment is still 20% – three times the official level.
Is there anyone doing well?
Our industrial production actually increased thanks to ‘Big Pharma’ – the multinational drugs companies that are our top exporters, shipping out $53.5bn worth of drugs last year.
Companies like AstraZeneca and Glaxosmithkline are putting their shoulders to the wheel in the fight against Covid-19, jointly expanding testing capacity and separately working on palliative treatments and, in Glaxo’s case, ramping up the science and production capacity for vaccine manufacture.
In the first quarter, Astra sales and share price have soared, for example. Likewise, the big digitial companies – Amazon, Google, Facebook and Twitter, which all have a strong presence here – are thriving.
What impact will there be on the price of my home?
Prices of homes haven’t fallen yet as sales take months to go through.
Some commentators say they will go down by 10 per cent this year amid all the economic carnage but the latest prediction from KBC Bank upped the ante further this week with a forecast of a 12 per cent fall in property prices this year – assuming all goes well.
That would be the first fall in house prices since 2012 and knock prices back four years to where they were in early 2016.
The average house price would fall from over €305k to €269k.
KBC also predicted that house prices would bounce back by 8 per cent next year.
... and worst case?
In KBC’s worst case scenario, prices would plummet 20 per cent this year and a further 5 per cent in 2021.
That would bring the average house price down to around €233k – lower than at the worst point of the last financial meltdown.
What about my pension?
THE shares your pension invests in plunged to record lows before the crisis really hit but have now bounced back somewhat in anticipation of a recovery from Covid-19 down the line.
Let’s hope the dealers are right.