The largest-ever cash injection for the ailing Irish economy has been announced by the Government in a bid to rescue it from the effects of the pandemic.
More than €5 billion in cash, along with €2 billion in loan guarantees for businesses, will be spread widely across public investments, worker and welfare supports, and funding for business and tax cuts, with Taoiseach Micheál Martin insisting that most of the money will be applied this year.
It is the single biggest cash stimulus ever for the economy – with business group Ibec estimating that it represents about 10 per cent of domestic demand in the second half of the year – and follows the example of other countries, notably the UK.
It will be funded by exchequer borrowing, which Mr Martin insisted was “proportionate and necessary”. He confirmed that the budget deficit this year would reach €30 billion.
Government spending is now running some €16 billion ahead of what was expected before the pandemic hit, a situation officials conceded was not sustainable in the long term. Nonetheless, senior sources also said the October budget was likely to feature additional stimulus measures.
Mr Martin made the announcement at Dublin Castle on Thursday, along with his coalition partners, Tánaiste and Minister for Enterprise Leo Varadkar and Minister for Climate Action Eamon Ryan, after a Cabinet meeting had approved the plan.
The big surprise in the package was the cut in the main rate of VAT, from 23 per cent to 21 per cent to take effect from September this year until February 2021. The VAT reduction was included at the expense of a proposed cut in capital gains tax which was opposed by the Green Party. Green leader Mr Ryan said the VAT cut would happen quickly and “benefit everyone”.
Mr Ryan also hailed the stimulus plan as an example of how the three parties could work together. The announcement comes after a shaky beginning for the coalition, and divisions over the travel green list .
Other measures include an extension of the help-to-buy scheme with homebuyers entitled to a tax relief of €30,000, an increase of €10,000.
The “staycation subsidy”, which will allow people who spend €625 to claim back an income tax credit worth €125, will be introduced in September. Consumers will be able to upload their receipts to an app on their phone to claim the credit.
The pandemic unemployment payment will be extended until next April, but the rates will be cut from September and it will also be closed to new applicants from then.
The temporary wage subsidy scheme is also being extended to March next year, but will be recast as a new scheme from September, with officials said to be working on a new permanent scheme which would see State support for temporarily laid-off workers. The extension of the scheme to April will involve lower payment rates to employers, but newly hired staff including seasonal workers will qualify and the total cost will be €1.9 billion.
The bike to work scheme is being extended, while there will be significant investment in cycling and walking facilities, €10 million for the arts and €10 million for tourism. A range of new training and employment grants are included for individuals and businesses, as well as incentives to take on apprentices.
The plan was largely welcomed by unions and business groups, but Sinn Féin said the plan was “deeply disappointing for SMEs” and a “total let-down” for business. The Labour Party said the announcement was “a missed opportunity for housing” while the Social Democrats said that while there were “positive measures” in the plan, “it must put money . . . into the hands of those who need it most”.