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Hello and welcome to The Stand with Ayman Dumphy, this time is proudly supported by Tesco at Tesco, our exclusive house for over 65 family carers and extremely medically vulnerable customers are every weekday, Monday to Friday, up to nine a.m..
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Now, yesterday, the government delivered a budget that is quite extraordinary by any standards at all. In total, we're talking seventeen point seven, five billion euros. That's the size of the budget package. And delivering his address, the Minister for Finance, Pascal Donahoo, said that he hoped the economy would recover more quickly and prevent a recession running into a depression.
And it was really, he said with that in mind, that he delivered his budget. And of course, Minister for Public Expenditure Feigenholtz Michael McGrath, also involved in this joint effort. And we're joined now by one of the country's leading economist, Jim Power, to discuss the package and the measures. Jim, this is extraordinary. By any yardstick you care to mention, for a country that is already 200 million in debt will be two hundred and forty million and that by the end of 2021, would you think that the government has done the right thing?
OK, and there's a few ways of looking at this, OK? The budget yesterday, as you say, was absolutely extraordinary. A package of seventeen point seven dollars billion by any standards is an amazing budget. And the background is pretty obvious. The economy has obviously had six or seven very difficult months, particularly particularly certain sectors of it. And as we all know about public finances, there's been massive spending sides. So I thought I would frame the question the other way.
And if the government didn't do it. What will things turn out like? I believe that actually the package yesterday and the general stance of policy at the moment is totally appropriate for where the economy finds itself in moments, because if the government stood back and continue to try and balance the public finances, I think businesses would go to the wall very quickly. I think hundreds of thousands of workers will lose their jobs and a lot of those would be in relatively low paid, slightly lower skilled parts of the economy.
So with the consequence that a lot of those people could become part of the permanent long term unemployed. So I think the economic and social and mental health implications of not adopting this sort of approach would be absolutely catastrophic for the Irish economy and our society and indeed for the Irish political system. It was I have said to you since the beginning of this crisis that I have believed that it is essential that government provides as much support as possible to as many business as possible to make sure that viable businesses survive this period and that once we come out the other end of Clover's, whenever that will be, and nobody knows at this stage that those businesses will still be around to pick up the pieces, to start growing the economy again, to start regrowing the public finances and so on.
So I think it's a lot of money and it's a lot of debt. But I do believe we had absolutely no choice and I would be unambiguously positive about most aspects of the budget possible and making sure I have delivered. Yes.
And I mean, when you look at the job losses in 2020, 320000 jobs lost and already you realise the scale of this is something we haven't seen in our lifetime. Jim, is it I mean, the challenges they faced, something we haven't ever seen in our lives. And the look at the papers this morning, look at the experts. They all appear to agree that this coalition government, which hasn't been sure footed in many things since they took office a couple of months ago, have here not shirked an extraordinary challenge.
Absolutely not, and that's one of the things that I found kind of reassuring about the budget deficit, that we definitely saw the coalition government acting as a united government for the first time, five key areas were targeted in the budget. covid-19 obviously was the overriding theme. Break this. And the government is planning on the assumption that there will not be a breakthrough deal. Hopefully that will turn out to be wrong. But that's the assumption, the sensible, prudent assumption that's been made.
And then the other three areas are health, housing and climate change. So that that's what the budget is all about. And as you say, as I say, I think there was a very, very united approach. And you and I, as I said again and again, it's a very appropriate approach given the sort of circumstances we find ourselves in now, you know, as you correctly say, him and the job losses that we're seeing in 2020 and there's going to be only a modest recovery in those job losses in 2021 are absolutely without precedent and they're pretty catastrophic.
And if you look at the publication, the Department of Employment and Social Affairs every Monday where they publish the sector breakdown of those workers in receipt of the pandemic unemployment payments on Monday last year, there was an increase of, I think, twenty eight thousand on the previous week. And that's because we went to national level three lockdown. But if you look within that, the accommodation and food services sector and the retail sector account for about 42 percent of the total.
So certain parts of our economy are being absolutely decimated by what's happening in relation to Cobus. And I think it was totally essential and appropriate that those sectors should be given and those workers should be given as much support as possible. The other point I would make you cite the debt figures and they are big numbers and the sort of money we're borrowing this year and next year, very, very significant because we're in an environment where the European Central Bank is engaging in massive bond buying.
It's keeping long term interest rates on government bond yields as low as possible, you know, close to zero negative in some cases. And the reason why this quantitative easing is monetary policy is being pursued. It is basically to allow every government in the European Union to borrow and spend as much as they need to to do exactly what the Irish government is doing at the moment. So in an environment like this, where the Irish government has no problem borrowing thanks to sensible decisions taken in the past, particularly 10 or 12 years ago in relation to defaulting on our national debt, the Irish government does not have a problem borrowing.
And secondly, the rates of interest that are being engineered to allow that borrowing are virtually zero. So that's important. The other important point is that the discussion we're having here is exactly the discussion that's happening in every EU country at the moment. So we're not unique. Our response yesterday is totally consistent with the response of every other country. When you are in the sort of exceptional circumstances that we're in at the moment, it does require, in my view, an exceptional policy response.
And I think that's what we saw yesterday. If you think back to the budget in February sorry, the general election in February, and if you think about the debate that went on at that stage and indeed the political debate that's gone on in recent years revolving around the stance of budgets, should the focus be on expenditure or taxation measures, and Phenergan would always have been more biased towards the tax side or the left of centre parties will be more biased towards the expenditure side in the aftermath of the election in February.
I think that was a solid political consensus that. Basically, two thirds of the budget should be based on expenditure measures, one third on taxation measures, so a strong bias towards expenditure and I think that's become the sort of accepted principle now. But if you look at the budget yesterday, seventeen point seven billion package, seventeen point four billion of that is expenditure measures, hundred 270 million taxation measures, with the main one being the reduction in the base rate for the hospitality sector and 13 to nine, 13 1/2 percent to nine percent.
So you can see there this budget is almost 100 percent dominated by expenditure measures rather than taxation. So that just shows you, you know, where we are as a country at the moment. And as I say, the exceptional crisis we're facing into and we're all we're all socialists now, Jim.
We're all we're all Keynesians. Yes. And, you know, I think Unconference said, you know, when the facts change, I change my mind. What do you do when you when you get a crisis like this where basically governments forces, businesses to shut down for very good reasons, are to restrict their business activities for very good reasons. And I think it's incumbent on government to come in and support so far to one I things that will come out of this crisis is definitely there will be a re-evaluation of the role that governments play in economies.
And I think certainly as far as we can realistically forecast at this stage, you will continue to see a very high level of government involvement in this country and indeed in every other country around the world virtually as well. So, yes, the facts have changed and I wouldn't describe it as socialism. I would describe it as a recognition that there is a role for government to be played here in intervening very, very aggressively to support economies and societies.
Yes, just something you mentioned there, Jim, money people. And I was one of them lounge bar politicians were bridled or than bridled at the idea of bailing out the banks back in the banking crisis. Why should we pay 100 cents in the euro to people who bought debt for 20 cents in the euro and capitalism was ripping us off? Well, you made the point there. Someone else made it. And discussion last night that if we hadn't bailed banks out, if we hadn't repaid the debt we owed to European banks, many of them German, would have been a very bad place indeed right now when we needed the money to carry out the program.
We hope this budget will see through.
Yes. I mean, if you think back to 10 or 12 years ago when that whole debate was going on about how we should deal with the various categories of bondholder, I mean, I had what it seemed to me saying that if I as an investor, invest in a bank bond and if that delivers a profit from a greater capital markets work force, obviously that bond delivers a lot. And B, that is also capitalism. That's how markets work.
So I, I, I sort of I had deep patience about it at the time, but on balance, I believe that the correct thing to do for the credibility and the longer term credibility of our sovereign states was to not default on debt. OK, and because if you look at the Argentinian experience, some people 10 years ago were saying, well, look at Argentina, look how dollars and cents of dollars. But Argentina is on its knees at the moment.
Yes. You know, it's it's had a couple of more bailouts since then. So Argentina is not a good case study. Iceland maybe an interesting case study in the sense that they burned the bondholders. And, yes, Iceland is back as a fully functioning economy, but is very different. You know, it's not a member of the European Union. It's a tiny country. It's very, very different. I'm not sure comparing Iceland with Ireland is an appropriate comparison to make Ireland as a member of the European Union, had certain obligations.
I would never deny that Europe did not stand. In the midst of that crisis, there's no doubt about that. There should have been a much greater level of solidarity at a European level, and there wasn't. And we were forced to take a lot of these measures ourselves without any support from Europe. But I still think, on balance, it was the right decision. And when you're faced with a crisis like this, where our government has no option other than to borrow money, it is interesting that Irish government bond yields are not in the least affected by the sorts of.
Yes, running at the moment. One point that I think is worth noting, the budget deficit of this year is estimated at twenty one point six billion. That's six point two percent of GDP next year. Following the changes announced yesterday. They're looking at a budget deficit of twenty point five billion. That's roughly a billion less than this year, five point seven percent of GDP. And opposition politicians were in last night bemoaning the fact that with low levels of interest rates, we should have borrowed a lot more money.
We should have run a bigger deficit. We should really have thrown a lot more assets. I think don't agree with that. Actually, I think symbolically it is important for our credibility also to be seen to be gradually getting the deficit down. So, you know, I think a one billion reduction sends out a good message about our fiscal credibility. OK, yes. But I would also accept fully and I think both ministers made this very clear yesterday, that this is still very much a moveable feast.
You know, we have no idea what the world is going to look like during twenty twenty deaths, percent epidemiologically question rather than an economic question. But I think there is sufficient flexibility built into the system to make sure that government will continue to do whatever it takes to address this problem. So we could well end up with a significant fire deficit next year. And if we do that, we respect the fact that covid-19 continues to destroy our economy and it is continuing to destroy ours.
It'll be continuing to destroy everybody else's.
Yes, it's a good thing from our perspective, Jim, that every country virtually in the world is in the same boat and therefore we're not going to be doing anything particularly different from governments in France and around the world. And in fact, in the United States of America, they're arguing there's an argument in the Congress, Nancy Pelosi and the president, about whether the bailout should be three point two trillion or two point four trillion so that they've moved into the socialist camp as well.
That they have indeed. Yes. I mean, the United States would have been traditionally described as, you know, much more of a market economy than the European model. But if you remember, back in the early 2000s, we talk about Berlin vs. Boston and all that stuff and the United States, very definitely Boston, Europe, very definitely Berlin. But you can even see in the United States that and this happened again after the great financial crash, you know, government debt involved when needed.
So were all free markets and government. We need government and then suddenly we see how important it is. But you make a very good point. And I think it's a really important one, that Ireland is not alone. This conversation, these events are happening in virtually every country in the world at the moment. And that is, of course, that is a source of consolation. It is a source of support for back in 2007, 2008. And the aftermath of that, OK, was a global problem.
But Ireland's in many ways was hit much harder than most other countries. And there was no solidarity at that stage. We did not get a coordinated global response to the crisis. So it was all very different this time round. Every country is being hit. There is a very strong, coordinated response from central banks and from governments. And that's why what we did yesterday in the types of budget deficits we're running in an international comparison perspective, they look pretty OK.
So that is very, very important. Yep.
Now, Jim, all of this is predicated on a solution to the cold virus and there is no end in sight.
In fact, all the indications are that we're going to.
Be living with this for a very long time. One of the things that Pascal Donahoe's said, and I quoted it in my introduction to this conversation, they've spent this money in part to prevent a recession turning into a depression.
Can you tell us and this is a very grave matter, the whole concept of a depression. Can you tell us or paint a picture of what a recession looks like and then of what a depression looks like? And I know depression looks very ugly.
OK, so there is a flippant description of the difference between a recession and a depression. A recession is when your neighbor loses his or her job. A depression is when you lose your job. But the technical definition of a recession is when you get two successive quarters of negative growth. And, you know, most of the world is on the brink. Most in the world are on the brink. But at the moment, a depression is basically a prolonged recession where you get maybe a couple of years of two or three years of consistent quarter on quarter declines in economic activity.
That's what we describe as a depression. And in a depression, in a recession. First of all, you know, we're in at the moment when you get the slow down central bank cuts, interest rates, quantitative easing, governments pump fiscal support into the system and you come out of the recession, whereas a depression occurs when you know there's no policy intervention like that, or even if there is, it doesn't work and you just get into this downward spiral of falling economic activity.
And, of course, the money consequences in that sort of environment. You know, tax revenues are being diminishing your time employment is diminishing over time. And of course, we know that the longer one is unemployed, the more unemployable one becomes. So depression can lead to long term unemployment problems and the social, the health and indeed the economic consequences of that are absolutely. And of course, the political implication is that out of depressions come very radical politics as well.
Yes, the rise of Nazi Germany in the 30s, it followed the depression. And so for so many reasons why it is really important to prevent a recession from turning into a depression. So for those fiscal purists out there who argue, you know, we shouldn't be borrowing this money, it's not stuff. I would just ask them to consider the alternative. And as I said in my introduction, the alternative would be where the economy goes into a downward spiral, where you get housing hundreds of thousands of people losing their jobs.
You get this massive long term unemployment problem, tax revenues collapse, the funding of public services collapses. Yes. And you end up in hell, basically. So that's why it is so important that we do whatever it takes to avoid something like that from happening. I mean, I would predicate it by saying just simply throwing money at a problem does not necessarily solve that problem. So, you know, government does need to be careful and needs to be very tagine about how it spends the money.
But broadly speaking, I think the approach we adopted in the budget this week is the absolute appropriate response.
Let me ask you, Jim, this question is the government and indeed other governments who will do doubtless much the same as we've done buying time to while we endeavor to beat this virus? It's, as it were, trying to save jobs, freeze if you like, time buying time and time is of the essence here in terms of not just a recovery, but even the survival of our society as we know it, because money, businesses who may have been struggling anyway may never come back.
The hospitality sector comes to mind immediately.
So really, this is an exercise and a worthy one in buying time.
It is indeed. And it's interesting, I listen to a lot of podcasts in the United States at the moment, and you hear a lot of epidemiologists and other medical experts talking about the virus and you get varying levels of optimism and pessimism about, as I did a webinar earlier today. It's Colonial in Trinity, and I regard as one of the more sort of pragmatic optimists out there. Yes. You know, he's he's pretty optimistic about a vaccine. And even as he's proved wrong on that, he's pretty optimistic, optimistic that the other medicines that are being developed.
Yes. She's the virus that does massive progress being made that we've never before seen this sort of medical response and scientific response to a crisis. So, you know, that that's that's one perspective. But it's going to take time for those predictions to come true. And I hope they do come true. And in the meanwhile, it's a question of survival. So, you know, we need to stay apart. We need strong social cohesion over the coming months to make.
It's going to be a difficult six months, there's no doubt about it. But we need to do this stuff to buy us time because hopefully, you know, by the time we get out the other end and that some of these positive medical developments will alleviate the significant health problems and health issues and medical problems. So it is even a question of buying time at this stage. And that's what the budget was about yesterday. And it was also within the budget.
We had the thirty three point four billion recovery fund. We had the and support scheme. These are schemes that are put in place and funding put in place, you know, to to continue to buy time into 2021 as long as it takes.
And I think that is so important at the moment that there's 5000 euros a week for certain businesses, for example, who have had to really ceased our business. But it's keeping them alive and allowing them to pay their staff.
Yeah, it's they did that see at that corporate restriction. And it's a mouthful. But that scheme is basically aimed at those businesses who have seen at least an 80 percent decline in their turnover compared to the same period in twenty nineteen. Right. And then the the grant age, I guess, will be based on the turnover which you had in twenty nineteen. So up to 5000 euro per week could be available for such businesses. The 80 percent is probably too tight because there are many businesses out there.
Restaurants, for example, who may have up to 15 people. Outdoor dining may be doing a bit to take away their turnover, maybe down 60 percent. They're still in a dire place. They still need support for it. So maybe that needs to be tweaked and perhaps other support mechanisms put in place. But these things are very, very significant and they are targeted at making sure that those businesses can survive. And as soon as they are able and allowed to reopen in a normal manner, well, then all of that support obviously disappears.
And the other thing I would say about all of this spending is that it's not as if the money is going out of our economy. The money is staying within our economy. Yes, OK. It's going to be spent. It's going to be taxes will be paid on. It'll it'll revolve around the system. So there'll be a strong multiplier effect.
OK, Jim, are very, very grateful to you for joining us on the stand and talking about the budget. We're very grateful to Jim, to you for listening and of course, to Tasco, our sponsor. That's all we have time for now. We'll talk to you soon.
The stand is proudly supported by Tesco and Tesco, our exclusive ours for over 65 family carers. An extremely medically vulnerable customers are every weekday, Monday to Friday, up to 9am.
Health care and emergency services have priority access at all other times. Now, more than ever, every little helps.