Brian Keegan: The harshness of lockdown doesn't have to be followed by the harshness of austerity
With the ever-improving news about the control of the pandemic, it is natural that we would look to other countries which had to deal with coronavirus earlier than we had, and see how they are managing their exit from the restrictions and lockdowns.
It is, of course, important particularly in the health arena, as Professor Philip Nolan the chair of the Epidemiological Modelling Advisory Group pointed out last week, to recognise that there are cultural differences.
Arrangements for areas like education might seem similar on the face of it, but it doesn’t automatically follow that what works in one country will work in another. Nevertheless, there are lessons to be learned and useful precedents to be followed.
The same applies to economic recovery. The harshness of lockdown does not have to be followed by the harshness of economic austerity for the sake of balancing the books.
Instead, we can usefully look to the experience in other jurisdictions as we try to revive an economy which has been put into cold storage for the past several weeks.
New Zealand has, rightly, been held up as an exemplar of good crisis management over the course of the pandemic.
It has had fewer cases and fewer deaths per capita than many other countries. In many respects, its economy is like ours. It is an island nation heavily dependent on agriculture and tourism and keen on attracting foreign direct investment. Our political, legal and tax systems are similar.
The New Zealand Treasury has broken its response to coronavirus into three waves – cushioning the impact, positioning for recovery and then rebuilding the economy. Measures are still being rolled out to help cushion the impact.
As in Ireland, many of these are being channelled through the tax system, with wage subsidy schemes and relief for late tax payments very similar to the ones in operation in Ireland.
However, while extending their wage subsidy scheme, the criteria for qualification has become tougher. Businesses wishing to avail of extended wage subsidies in New Zealand must be able to show a 50% decline in income. Here, the criterion is 25%.
The areas of the New Zealand economy which will be most badly affected are the tourism, hospitality, travel and international student learning sectors. Here, too, there are resonances with our experience.
It is now being recognised by the business community and the authorities in New Zealand that the second and third waves of their national response - positioning for recovery and resetting of the economy - will be a slow process.
Returning to a balanced budget seems not to be an immediate priority, and it is acknowledged that it could take up to three years before New Zealand is able to consolidate its fiscal position.
A crucial difference between our countries is that their national debt is expected to peak at around 50% of GDP. Our national debt burden is considerably higher, though it seems that we will have the advantage of being able to secure cheap finance via the EU institutions.
No matter how well the pandemic was managed by any country, nor no matter how well contained among its population, the economic impacts will be severe and will not be short-term.
The idea of a V-shaped economic recovery - a rapid decline followed by rapid improvement - looks less likely by the day.
Economic recovery will happen. What is now required is patience on behalf of our authorities, a willingness to invest, and not rush to further years of damaging austerity trying to secure balanced budgets.
