IT IS TOO difficult to predict how the economy will look in a year’s time due to ongoing uncertainty around the trajectory of the Covid-19 pandemic, the ESRI will tell an Oireachtas committee today, while also adding that in a worst case scenario GDP could decline by as much as 17%.
The Economic and Social Research Institute will outline a number of scenarios to TDs on the Special Committee on the Covid-19 response and will warn that the growing cost of the pandemic to the Irish economy “will have to mean higher taxes”.
In one scenario, where the lockdown restrictions continue to ease based on the Government’s roadmap, there will be a fall in GDP, which is used to measure the size and growth of the economy, by around 12%. Investment will also decline by 13%.
In a scenario where there is a second wave of the virus in the final quarter of 2020, GDP could decline by as much as 17%, and in a more optimistic scenario, where the pandemic is suppressed for the remainder of the year with the return to pre-Covid conditions, there would be a decline of around 9%.
In the better of the three scenarios, where GDP declines by 9%, it would represent a deficit of €28 billion to the Irish economy compared to pre-Covid forecasts.
Director of the ESRI Alan Barrett is expected to tell the committee that “there was simply too much uncertainty” to determine how the economy will look in a year’s time, and will add that “we expect a deficit to remain in 2021 even in the context of a likely recovery.”
He will caution, however, that the role of the state in strengthening sectors such as childcare and health will “have to mean higher taxes”.
In recent days, Fianna Fáil, Fine Gael and the Green Party have been engaging in late night talks to agree a Programme for Government for the next four years.
Speaking after the programme was signed off by the three party leaders yesterday, Taoiseach Leo Varadkar insisted there would be no increase in income tax rates in the short-term, at least until the economy returns to growth.
A number of other speakers from Government departments will also address TDs today, with Robert Watt, secretary general at the Department of Public Expenditure and Reform warning that “the substantial emergency measures introduced in the early stages of this crisis have had a significant expenditure impact”.
John McKeon, secretary general at the Department of Employment Affairs and Social Protection is to advise that his department is likely to exceed its budget for the year by over €10 billion and that “for every €1 that is forecast to be raised in income tax this year, we will spend about €1.60 on social welfare”.
Money borrowed to fund the increase in social welfare payments, and the associated interest which will run into the billions, will need to be repaid in the coming years.
Latest figures show that almost 500,000 people are still in receipt of the pandemic unemployment payment at a cost of €175 million to the State.
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