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Eoin McGee: We will have the power to kickstart the economy

Eoin McGee runs the numbers in the wake of Budget 2021 and says Ireland’s savers will need to step up after Level 5 to bring the economy back to life.

Eoin McGee

THE VIRUS DOESN’T discriminate, economic lockdowns do. This pandemic has been brutal. Our economy is reeling and facing another knockout blow.

As we try to come to terms with Level 5 restrictions, we need to acknowledge that the first lockdown wreaked havoc on businesses and lives all over Ireland. When it comes to health, Covid doesn’t discriminate, but when it comes to peoples’ finances, it is not an equal opportunities viral menace. 

Level 5 is going to cost the country dearly. Estimates show that these weeks at Level 5 restrictions will cost the country an extra €1.5 billion in support costs. This move will also put an estimated 200,000 more people out of work. 

Same people will suffer again

And there’s more. The new Covid Restrictions Support Scheme, announced in the Budget, provides businesses that are forced to close with weekly grants of up to €5,000. At level 3, the CRSS would have cost €40 million a week. Under Level 5 restrictions this rises to closer €100 million. 

All told, Level 5 will be another knockout blow to the economic and social fabric of Ireland, but we have it in us to get up and fight again. 

When the first lockdown came, more than a million people were forced to rely on some form of social welfare payment like the PUP or the wage subsidy scheme. Most had never faced the social welfare system before. As we entered the lockdown, there was a genuine ‘we are all in this together’ spirit. We knuckled down to flatten the curve. 

However, as we emerged from full lockdown and stumbled to get the economy going, a grim picture appeared. We were no longer ‘all in this together’. While some people emerged economically unscathed, many others faced financial devastation. 

In Level 5 the same people who suffered the most the first time will continue to suffer: young trade professionals who can’t work remotely; retail workers; graduates; anyone working in the entertainment industry or the hospitality sectors. 

Avoid a K-shaped ‘recovery’

You may have heard of a K-shaped recovery and thought it sounded like a good thing. It isn’t. 

A K-shaped recovery means high-income professionals will see jobs come back and their incomes grow, while middle and those in lower socioeconomic brackets will not. 

K-shaped recoveries are not good for the long term health of societies and economies. We are facing such a damaging outcome unless we all start focusing on the sectors and the workers who need our support the most. Fixing the economic and financial meltdown goes beyond government actions. As a nation, we should understand that we can all play a part. 

According to the Tánaiste Leo Varadkar, there are over two million people in Ireland who are better off financially because of Covid – their incomes stayed the same. At the same time, their expenses fell through the floor.

This suggestion is supported by the top line figures in April when we see that households added over €3 billion to their deposit accounts. This figure is the largest monthly increase ever recorded.

To put this amount in perspective, we typically add €443 million to our national savings each month. We now hold over €120 billion on deposit; over 10% more than this time last year, when the economy was going well.

If the economy is to recover, it will require precise government intervention for those who need it most. The government needs to support industries the public cannot, sectors that are restrained by public policy to protect the nation’s health.

Once the economy opens again, people need to start spending their savings. We all need to shop local. 

‘In our hands’

As the dust settles on the Budget 2021, we can now see a little wood from the trees. 

It’s fair to say the government has tried to utilise the €88 billion spend this year and target some of the areas at the bottom half of the K. 

The €100 million for the Arts, the CRSS scheme which gave businesses up to €5,000 per week in cashflow, the extended commitment to the PUP, are all reflections that the government is trying to do the right thing. It is now supporting employees as well as their employers. 

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Our elected representatives have started doing their part. Now it is time for the top half of the K, the two million people in Ireland who are better off financially as a result of Covid, those people who put away €3 billion in April instead of the usual €443 million; these are the people who need to step up once our economy opens again. 

We are, after all, still in this together, aren’t we?

Eoin McGee is a financial planner and MD of Prosperous Financial. He also presents the RTÉ One series ‘How To Be Good With Money’.

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