Budget 2021 – a focus on wellbeing and social progress key to a fair recovery

Posted on Monday, 21 September 2020
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Budget Choices 2021 contains detailed, fully-costed Budgetary packages across more than a dozen policy areas including health, housing, education, welfare, sustainability and more; it also contains a range of costed, revenue-raising proposals.

The scale of the social and economic costs of Covid-19 mean that extraordinary levels of Government expenditure will be required to sustain demand and to support incomes for a lengthy period.  Alongside this, the challenges that existed pre-Covid remain and cannot be ignored.  As we slowly emerge from public health restrictions and into a recovery period, sustained public investment is crucial.  Government must not become fixated on the level of national debt; otherwise it will repeat the mistakes of the past. Budget Choices 2021 is available to download here.

Deal sensibly with post-COVID-19 costs

Social Justice Ireland’s message on Budget 2021 is simple: take advantage of record low interest rates on government borrowing.  Lock in this cheap money for as long a timeframe as possible; do what already needed to be done on poverty and social exclusion, housing and health, Just Transition, and other infrastructure investment; and park the costs as cheap borrowing to be run down over a long period of time.

Borrowing cheaply for investment always makes good fiscal sense, but it makes sense now more than ever. If we look at the current economic crisis as being a situation to be managed over several years, or maybe even several decades, competent management of the stabilisation phase over the short term will ultimately minimise the long-term economic damage, and therefore minimise any overall fiscal adjustment that might be needed.

One of the most important decisions Government makes in Budget 2021 will be around the fiscal stance and the approach government takes to the significant deficits that will characterise this budget and most likely all budgets in its term of office. The focus of Budget 2021 must be on supporting incomes, supporting domestic demand and economic activity.

.In Budget 2021 Government must begin the process of restoring the demand for labour, and also address social and infrastructure deficits, strengthen the economy, and protect the environment.  In this post-Covid world, Government now has a unique opportunity to tackle Ireland’s growing inequality and failure to reduce poverty, its inadequate infrastructure and services and the degradation of its environment. Budget Choices 2021 is available to download here.

An unemployment target should determine fiscal policy from 2020-2022

For the years 2020-2022, Social Justice Ireland proposes that the fiscal stance adopted by Government should be determined by an unemployment target, rather than a deficit target, in recognition of the role domestic demand plays in sustaining domestic employment.

 As the increase in unemployment in Ireland is entirely caused by a collapse in demand, the temporary adoption of demand management policy represents the most effective means to restore economic activity.

We acknowledge the adoption of an unemployment rate target for 2020-2022 would represent a shift in the fiscal policy framework, and a temporary departure from the EU fiscal rules.  However, the European Commission has activated the ‘general escape clause’ of the SGP and when combined with the extremely accommodative policies of the European Central Bank this provides Ireland with the policy and substantive space to implement a fiscal policy focused on sustaining demand and incomes, rather than targeting an arbitrary debt or deficit number. We must take advantage of this opportunity. Budget Choices 2021 is available to download here.

Plan now for additional long-term tax measures

The State should begin to plan now for the additional tax measures necessary, over the long-term to finance the Government expenditure required to finance universal services and income supports to our citizens.

Government must use the next three years to not only restore demand but to address social and infrastructure deficits, to strengthen the economy and to protect the environment.  This does not mean that we borrow over the long-term to avoid broadening the tax base and increasing the total tax-take. We need both of these, but not simply to reduce the deficit or the debt.  Rather, we should see them as welcome opportunities to refocus on preparing Ireland for a post-carbon world. Budget Choices 2021 is available to download here.

Support economic recovery, don’t prevent it

 In Ireland, over the past decade and more, we have become accustomed to being guided by an overall budget target that has adjusted to changing realities over time.  After the crash of 2008 the focus was on reducing the borrowing. Then it moved on to focusing on balancing our income and expenditure. More recently, as we were more or less paying our way, the focus had been shifting towards highlighting the need to reduce the national debt.   The post-Covid-19 world changes all that.

A fiscal stance with the simple objective of reducing the debt and deficit would be a serious mistake, and would, over time, undermine the very objective it seeks to achieve by permanently destroying the economic capacity of the country.  It is vital that the fiscal stance adopted by Ireland in response to the Covid-19 crisis supports an economic recovery, rather than preventing one and causing permanent damage to our long-term economic capacity and more importantly, to the well-being of our citizens

Budget Choices 2021 is available to download here.