Covid spending errors cannot be repeated

Comment & Opinion

BUDGET PLANS Minister for Finance Paschal Donohoe faces a daunting budget this winter.

Going into the autumn budget, the Government faces challenges no less daunting than those posed by the Covid crisis. Buoyant tax receipts and a bulging briefcase will help to alleviate the cost of living crisis, but the Government is well aware that whatever is paid out to the hard pressed will never be enough. Opposition parties will accuse the ruling parties of tight fistedness, no matter how much, or how little, is channeled back into the pockets of the public.
Minister Paschal Donohoe, the Minister for Finance, is a prudent man. Not for him the cavalier dictum of one of his predecessors, Charlie McCreevy, that ‘when we have it, we spend it’. In his ally, the Minister for Public Expenditure and Reform, Michael McGrath, he has a kindred soul who sings from the same fiscal hymn sheet.
Their task is to find the right balance between short and long term spending, targeting budget supports to those who most need them, but keeping a watchful eye on the many long term commitments which will require funding in future years.
They will, as far as possible, need to avoid measures which require recurrent annual spending, since even the best financial minds are unable to say what lies ahead for the global economy. For now, the emphasis will be on once-off spending measures rather than continuing commitments, underlined by the aim of funneling supports to those who most need them. In that context, the proposed public sector pay agreement, which is framed to give higher pay increases to lower paid staff, is a welcome starting point.
The Minister has, uniquely, access to generous tax reserves to help fund the cost of living alleviation measures. But he will be aware that the corporate tax windfalls which have swelled his coffers cannot be relied on forever. And he will be equally aware that monies must be set aside for the costs of future pension provision, Sláintecare, the mica problem, climate change and the many other big ticket commitments already embarked on. He will be criticised for not spending everything on the weekly shopping, rather than saving for the day the roof begins to leak, but that is the standard political criticism he is well able to cope with.
The cost-of-living budget will be a balancing act to test the government’s mettle. There will be clamorous calls for more and more financial sticking plaster to staunch the bleeding. The Government will need to be able to hold the line, to know how to protect households without at the same time adding to inflation, to be able to spend enough but yet not endanger the public long-term finances.

Covid errors
In particular, there will be a need not to repeat the errors of the spending on the Covid crisis. This time around, money will not be as cheap to borrow. This time around, the state will need to be more discerning about who is in most need of support, and who can manage without it.
In the two years of Covid, taxpayer supports were poured into companies which, in retrospect, were well able to go without. Over 600 subsidised companies were, it turns out, able to either pass on the subsidies to their shareholders by way of dividend payout, or add the figure to the bottom line of retained earnings. A Dublin merchants’ providers this week revealed that it had made record profits in 2020 and had boosted executive pay by 60 percent, while at the same time claiming, albeit legitimately, €1.8 million in Covid supports. A prominent fast food cum hotel owner (who had criticised the Pandemic Unemployment Payment to workers as ‘like winning the lotto, and encouraging laziness’), claimed €6 million in Covid support in 2020, but made profits of €22.9 million.
Minister Donohoe has belatedly conceded that hundreds of businesses were given state assistance when they could have managed without. He pleads that the law does not allow him to reclaim Covid subsidies already paid to companies which, in fact, performed very well during the crisis. The best he could do, he admits, was to publicly appeal to the entities concerned to return the monies, but there is no clawback condition to allow him to do anything else.
What all that tells us is that, while we may have emerged from Covid relatively unscathed financially, it cost more than it should have. In addressing the cost of living crisis, we must ensure that the same mistakes are not repeated.