It evoked some unnerving words from the Cabinet meeting: ‘carnage’, ‘significantly worse’, ‘taken aback’, ‘severity’ and ‘shocked’. They were discussing a report on the impact of a no-deal Brexit, a report which was not published but was taken off Ministers at the end of the meeting. So we don’t have hard numbers though one report stated that 10,000 jobs will be lost in the tourism sector alone in the first three months.
The ESRI and the Central Bank have already done simulations on a no-deal Brexit with the latter suggesting that it could drive the economy into recession territory. This ‘lot worse’ Cabinet report might lead to an even further downward revision.
The Government will be challenged on two fronts (among many). First, it will have the opportunity to show that it has learned the lessons from the last crisis. If the economy is hit, jobs are lost, wages frozen – then the last thing it should do is try to maintain a balanced budget. We need to get through this crisis with as little damage as possible and as quickly as possible. This will cost. We can deal with that cost when the economy is on the mend.
Second, if Ministers come out with a ‘we’re-all-in-this-together’ then they must be kept to their word. This requires the full participation of employees in decisions taken at company and sectoral level in Brexit-exposed industries.
We should treat this as an emergency – an emergency that could impact on the lowest-income areas. Gerard Brady of IBEC tweeted a provocative graph.
The further left a county is on the chart, the lower the income. The higher, the more Brexit exposed. Cavan and Monaghan are really in the firing line – having below average-income with more than 25 percent employment in Brexit-exposed sectors. Needless to say, the lower the income the more difficult it will be to deal with an economic hit.
The budget will be framed around Brexit responses. Therefore, in keeping with the two principles above – a loose fiscal policy and wider participation in decision-making – here are some proposals to create resilience in the economy.
Fiscal Policy
1. Unemployment Benefit: Introduce pay-related unemployment benefit in the next budget. If jobs are lost then, at least, ensure that affected households can retain most of their living standard and purchasing power. This would help maintain consumer demand and businesses reliant on that demand. Further, it would help maintain income and indirect tax revenue
2. Short-Time Working Scheme: introduce a short-time working scheme (similar to ICTU’s proposals re: the construction sector in 2009). Germany used this approach during the early part of the last recession. This would help workers remain in work. Instead of laying people off, working hours would be reduced with the state subsidising the employee for the wage loss. This would operate for a temporary period but it would give time for firms to adjust and pursue alternative market strategies, or for job creation agencies to develop new employment in the area affected.
3. Public Housing Drive: construction sector activity has hit a six-year low and is now on the verge of contraction. Use the NAMA surplus - €4 billion over two years – to build public housing, especially cost-rental. As well as addressing the housing emergency, this will create employment, raise revenue and reduce unemployment costs, while supporting the productive economy with lower rents.
4. Raising Revenue Harmlessly: tax revenue will fall with employment losses. The Government will need new sources of revenue to partially off-set this loss but without harming the economy. A Net Assets Tax (or wealth tax) would be an ideal candidate. It would only impact the very highest earners and, according to ICTU, could raise €350 million – though the ESRI has estimated even higher revenue depending on the design of the tax. Increasing tax on assets and rentier income is a prudent, efficient and equitable way of raising revenue
5. Carbon Dividend: the crisis should not be used as an excuse to defer necessary action on the climate emergency. The carbon tax should go ahead but only on condition of a Carbon Dividend – returning the revenue to households through a flat-rate per capita payment. This would benefit low-average income households and reduce income inequality, an excellent instrument during a downturn.
6. No Tax Cuts: tax cuts, beyond adjusting for inflation, should be removed from the agenda. It would be irresponsible to cut taxes during a crisis. And ditch the Rainy Day Fund. It’s starting to rain.
7. Never Mind the Deficit: the key principle in fiscal policy during a downturn is to limit the duration and depth of the downturn. Once the economy has returned to growth, the deficit can be addressed (this is true counter-cyclical policy). Ireland has the benefit of having over €20 billion in cash available to it. Further, the National Treasury Management Agency is selling bonds at almost 0 percent rate. Access to funding for investment and counter-cyclical policies is not an issue.
Economic Participation
8. Establish Sectoral Committees across Brexit-exposed sectors with employer, employee and Government representatives. State support for companies in these sectors would be managed and monitored through these Committees: goods and services diversification, niche marketing in the UK, production efficiencies, finance accessing, R&D and innovation initiatives, etc. This, in effect, would establish sectoral collective bargaining and ensure that everyone who is affected has a role in developing and overseeing the response, especially employees.
9. Public Enterprise Expansion: Public enterprises should be required by their shareholders (the Irish people through the relevant Minister) to commercially develop expansion and new-start plans in the most affected sectors and regions. Energy, transport, communications, forestry and fisheries, waste management, postal and financial services: all these are areas where innovative ideas can emerge at national and local level. The Sectoral Committees could have a regional dimension and, so, play a key role in public enterprise expansion.
10. Progressive Companies: developing progressive companies is key to enterprise resilience and flexibility (in terms of diversification). A natural follow-on from effective sectoral bargaining would make state support for individual companies conditional upon those companies agreeing to bargain collectively with their employees if that’s what workers want. This is based on the simple principle that if we are all facing a crisis then we should all have a say in resolving that crisis.
These are only some ideas. Others will no doubt have better ones. Let’s get them into the political mix. If the report to the Cabinet was as bad as reported, then many areas and sectors are facing into an emergency. Emergencies require bold and innovative measures, learning from the past so we don’t repeat the same mistakes.
And vision. Lots and lots of vision.
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