This is a matter of life and debt, so just hang the expense
THE €64billion cost of bailing out our banks a decade ago must be looming large in the minds of our Government and civil servants as they go about trying to save the country from ruin now.
They know that vast sums of money must be spent in coping with this dual health and economic emergency, but they must remain worried about the consequences of spending money we either don’t have or can’t get.
The banks were saved through a combination of dipping into our collective national savings – the pensions reserve was looted – and additional borrowing. Unfortunately, as the economy contracted, the tax revenues dried up and the social spending increased, until the point where we could no longer get money on the international markets and we needed rescue by the International Monetary Fund, the European Central Bank and the European Commission.
This time is different of course, in that we are not on our own, or at least not among the very small number of countries that required rescuing then.
The Government has only recovered about a third of that ‘investment’ in the banks to date – and one of the consequences of this catastrophe is that the rest of that money may now never come back. But that’s an issue for another day.
Valuable
But that €64billion is worth remembering when you see that the Government’s estimate of the cost for rescuing the wages of workers and paying benefits to those who have lost their jobs because of Covid-19 amounts to less than €4billion for the next three months. It would have to be paying that for four years to amount to €64billion again.
Surely the people of Ireland are more valuable than the banks that almost ruined us.
However, the Government’s finances are heading for another crisis. Even if we can quantify the likely cost of income supports, we don’t know how much the cost of dealing with the health issues will be. There’s effectively an open chequebook for that, as there should be.
Revenue will prove to be as big an issue. The Government has instructed local authorities to waive business rates and it has deferred for a few months the collection of local property tax from families, due to be paid by many via direct debit this week. It has also ordered Revenue to accept that if taxpayers cannot make their due payments this month, they should be given time to pay what is due and not charge interest for late payments.
But the March Exchequer returns – which show the Government’s income and expenditure each month – should make for grim reading when released next week.
The amount of tax collected will be dramatically below what had been expected… and government spending may be out of line, too.
And if those figures are bad, those for the next few months may be much worse, as all taxes related to activity in the economy – PAYE, PRSI, VAT, corporation taxes, stamp duties and more – collapse in absolute terms and relative to what had been budgeted.
The Government knows that the money to cover all of the emerging deficits should come from Europe, via the ECB, given that it has pledged to do everything it can when it comes to buying each nation’s government debt, but it also knows that the demands from every other EU member state will also be vast.
Solidarity between member states will be strained and some may take the opportunity to demand in return for any money significant changes in the way we collect corporation taxes and agree spending budgets in the future.
Others – and this should not be underestimated, although it is not an immediate issue – may see this as an opportunity to start breaking up the EU if it is not seen to respond to the needs of individual nations according to their demands.
Our institutional memory of what happened to us a decade ago may be instructive, but it cannot force us into a position of being too conservative in our responses to the emergency.
Just because money on the banks was not necessarily all well spent – some form of rescue had to be achieved – it doesn’t mean that individuals and families can be sacrificed because of that.
We need money in the economy rapidly and we can worry about the consequences later.