Stability Programme Update shows why economy and society must be treated equally and addressed simultaneously

Posted on Friday, 1 May 2020
challenge of success 0

All plans for recovery from the present crisis must ensure that the economy and society are treated equally and addressed simultaneously.  Analysing the Stability Programme Update (SPU) recently published by Government[1] and reflecting on the commentary on its implications, it is clear that Ireland is in danger of repeating the mistakes of the past.  One of the major lessons to be learned from the crisis of 2008/9 and the subsequent recovery is that giving priority to the economy over all else simply leads to some parts of society doing very well while great swathes are left further and further behind[2]. 

The present pandemic has revealed how Ireland’s social services and infrastructure are far below the levels Irish people need, levels that Ireland could well afford.  The healthcare system was not reformed as set out in Sláintecare because enough finance ‘could not be allocated’.  Yet, with the arrival of Covid-19, an additional €2bn was found for healthcare in a matter of weeks to ensure that the system could cope[3].

Budget 2020 provided further evidence of the failure of Government to protect the vulnerable. While TDs salaries rose by about €1,600 in 2020 (€30 a week) many of Ireland’s most vulnerable people were told that, because of the threat of Brexit, their welfare payments would remain unchanged. In practice this meant that their standard of living was set to fall in 2020 as no increase was given to cover the rising cost of living.[4] These vulnerable people also faced additional higher charges for transport (public and private) as a result of increased carbon tax. 

The unfairness of their own position was quickly acknowledged by Government, in practice, when they decided that €203 a week (the core social welfare payment) was insufficient for those losing their jobs or suffering illness as a result of Covid-19.   Finance was found to increase the €203 payment by over 72 per cent to €350 for the newly unemployed, while leaving those already unemployed or on basic illness benefits on the lower payment.[5] 

The SPU sets out a macroeconomic and fiscal scenario for the period 2020-2021 which incorporates the estimated impact of the COVID-19 pandemic.[6] The SPU would normally provide a forecast for the current year and the following four years.  This time around, understandably, it simply provides a scenario.

The assumptions underpinning the scenario presented are optimistic and may not be realised; they include an assumption that the current restrictions last for three months, that there is no reoccurrence of these restrictions, and that there is a strong economic response once the restrictions are lifted.[7]

In this scenario the gross debt-to-GNI* ratio is projected to increase to 125.1% by-end 2020. However, the cost of borrowing is low with interest spending expected to decrease in 2020 and 2021 (despite the stock of debt increasing). The positive intervention of the European Central Bank helps in this situation as does the NTMA’s strategy of "locking-in" low interest rates and lengthening the average maturity of Ireland’s debt.

SPU 2020 estimated Government expenditure of €8 billion to pay for COVID-19 measures and to provide employment and unemployment supports in the second half of the year but does not address what direct support may be available to the Irish economy from the EU.

In all of this the European Union’s Fiscal Rules are acknowledged as being problematic.  To facilitate appropriate fiscal action against the economic repercussions of the pandemic, the budgetary requirements that would normally apply under the Fiscal Rules have been suspended.[8] The pandemic is considered an unusual circumstance beyond the control of Members States which allowed the Commission to activate the ‘General Escape Clause’ of the Stability and Growth Pact (SGP).  However, it has been activated for only one year which will be far too short a timeframe in which to address the consequences of this global crisis. Far more will be required. 

Social Justice Ireland has always promoted the values of justice, equality, sustainability and the common good.[9]  We have also long argued for a new Social Contract where everyone in Ireland would have sufficient income, meaningful work, appropriate accommodation, relevant education, basic healthcare, cultural respect and real participation.[10]

We have argued that if Ireland is to achieve this then it must focus on generating five outcomes simultaneously: a vibrant economy, decent services and infrastructure, just taxation, good governance and sustainability.[11] 

The key lesson from Ireland’s response to the 2008/9 crash is that these outcomes must be worked for simultaneously, not in sequence.  A vibrant economy is required to provide the resources to finance decent services and infrastructure.  But without decent services and infrastructure there won’t be a thriving economy.  Likewise, just taxation and good governance are required and must be in place simultaneously, not be a promise beyond some horizon.  Finally, all initiatives should be sustainable environmentally, socially and economically.