Ireland unveils 18 billion euro package to weather Covid and Brexit storms

The Irish Government has unveiled an 18 billion euro budget package based on the premise the country’s fight against Covid-19 will last throughout 2021.

The major uplift in public spending includes 8.5 billion euro to help public services impacted by the virus and 3.4 billion on a recovery fund to stimulate growth and employment as the country weathers the combined storm of coronavirus and Brexit.

Finance minister Paschal Donohoe told the Dail parliament the pandemic represented the biggest challenge the state had faced since independence a century ago.

“We have faced numerous difficulties since independence, but never one like Covid-19; an invisible enemy that has caused great suffering, and disrupted so much of what is central to our well-being,” he said.

“Equally, we meet this enemy with greater determination, resolve and resources than ever before in our history.”

Irish Budget
Finance minister Paschal Donohoe and public expenditure minister Michael McGrath, left, unveil Budget 2021 (Liam McBurney/PA)

Mr Donohoe said the budget was based on the assumption a vaccine would not become widely available next year.

“We will prevail,” the Fine Gael minister insisted. “We will come through this. And from the ashes of the pandemic, together, we will build a stronger, more resilient Ireland.”

Budget 2021, the first produced by the recently installed Fianna Fail, Fine Gael and Green Party coalition government, is also based on the premise that the EU and UK will fail to strike a Brexit trade deal.

Public expenditure minister Michael McGrath said the combined threats posed by Covid-19 and Brexit left the country facing a “truly remarkable” challenge.

“The task for this government is to guide the country through one of the most difficult periods in our history,” said the Fianna Fail minister.

The state’s 24.5 billion euro response to the pandemic has already left Ireland facing a 21.5 billion euro deficit (6.2% of GDP) in 2020.

#Budget2021 sets out a framework for the path ahead.The Govt will do its part, &we, as citizens…now need to continue to do our best to combat &then defeat the common enemy; this disease. The stronger our response, the sooner we will complete this journey https://t.co/XBvDfqhrF8pic.twitter.com/kt8G0tBBtQ

— Paschal Donohoe (@Paschald) October 13, 2020

The country is forecasting a similar deficit of 20.5 billion euro in 2021.

The state has so far managed to borrow on international markets at relatively low interest rates.

The 17.75 billion euro budget package includes 270 million euro worth of taxation measures.

The plan does not include any broad changes to income tax rates or bands, however there are some slight adjustments to band rate thresholds for Universal Social Charge and employers’ PRSI (Pay Related Social Insurance).

Budget 2021 will also see capital expenditure increase to 10.1 billion euro, including significant investment in schools, home building and public transport.

Mr Donohoe said failure to strike a Brexit trade deal would reduce Irish growth by an estimated 3% in 2021, to 1.75%.

In the current year, he said GDP is projected to decline by 2.5%, with domestic demand falling by 6%.

He forecast a total loss of 320,000 jobs in 2020, with an estimated 155,000 jobs to be recovered next year.

Irish Budget
A packet of cigarettes in a local shop in Ireland, which will go up by 50 cent a pack for 20 cigarettes (Liam McBurney/PA)

In terms of the Covid-19 response, the state’s wage subsidy scheme is to continue in some form beyond its current expiry date of next March.

The Government also announced a new support payment for businesses forced to close by coronavirus restrictions. Eligible businesses could receive up to 5,000 euro a week.

Mr Donohoe also announced a well-trailed cut in the VAT rate for the hospitality and tourism sector from 13.5% to 9%.

Other measures include a Christmas bonus payment for recipients of the Pandemic Unemployment Payment (PUP) and a 50 cent per packet increase to the price of cigarettes.

A 7.5 euro per tonne rise in carbon tax will see the price of petrol and diesel also increase by more than a euro.

Sinn Fein, Ireland’s main Opposition party, criticised the budget for failing to “provide certainty” for workers and families.

The party’s finance spokesman, Pearse Doherty, said: “This budget needed to provide certainty that incomes won’t fall off a cliff, that health can weather the storm. This budget has failed to provide that certainty.”

For the first time, the budget was not unveiled in the traditional surrounds of the parliament at Leinster House.

The Dail instead sat at Dublin’s larger Convention Centre on Tuesday to allow for social distancing.

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