Ireland Canada Chambers of Commerce – Embassy of Ireland – Quarterly Update – January 2021
The Irish government’s actions in response to the pandemic have been guided by public health experts, with consideration also given to the impact of public health restrictions on society and the economy. A major emphasis was put on testing, contact tracing and strengthening health service capacity. For example, there were over 1m downloads of the Covid-19 tracker app in the first week, which is now being used as a leading example internationally. Ireland was also one of the first countries to link its contact tracing app with other EU countries, supporting safer essential overseas travel.
A five-level framework for restrictive measures was developed to manage behaviour in the face of the virus. The plan’s priority is to keep people safe, keep schools open and protect the resilience of the economy and communities. It also provides further guidance for businesses following previously published return to work safety protocols. Ireland is currently at Level 5 (more info available here).
GDP impact has been less severe than initially forecast. The recent deployment of the various Covid19 vaccines and treatments has been a key determinant of the economic outlook. The IMF has forecast that Ireland’s 2020 contraction in GDP will be smaller than in most other advanced economies. A sharp decline in domestic demand and consumption has been offset by resilience in key sectors, including the vital exporting activities of multinational companies (MNCs).
As with most other countries, Ireland’s labour market has been severely impacted by the pandemic. The labour-intensive tourism, hospitality & retail sectors have been most impacted due to the fall in demand and health restrictions. To counter this, we have seen unprecedented government income supports for workers and wage supports for employers remain in place. The number of recipients of government supports fell over the summer, but have increased following the moves to heightened levels of Covid-19 restrictions. This is likely to continue into the New Year. Budget 2021 forecast 16% unemployment for 2020 and 10% in 2021, but the outlook is subject to considerable uncertainty.
Essential activity has continued throughout 2020, supported by resilient and flexible infrastructure. A list of essential services allowed companies providing key goods and services to continue with onsite operations. The continuity of supply chains remains a key focus for Government, in both a Covid19 and Brexit context, with the majority of the 1,500+ multinationals in Ireland successfully implementing Business Continuity Plans.
Crucially, the Irish economy has a track record of recovering strongly from large-scale setbacks. The GFC in 2008/9 was followed by record levels of employment and restored public finances. As a highly globalised small country, structural economic change has been a persistent feature for 30 years, more so than in most OECD countries. An agile system of governance responded quickly to the current crisis with unprecedented business and income supports. Unlike 2008/09, monetary policy and debt dynamics allow productive capital investment by Government to continue. Ireland’s structural strengths also position us well to capitalise on a transformative green and digital recovery, in line with EU ambitions.
Ireland’s public finances are also well-positioned to deal with the debt/costs arising out of the pandemic. We have the fiscal space and sustainable debt to support the health and economic response. Our debt to GDP ratio of 57% in 2019 was below that of the UK, Germany, EU and Euro Area averages. Government forecasts a debt to GDP ratio of 62.6% in 2020, and 66.6% in 2021. A budget deficit of 6.2% and 5.7% of GDP is forecast for 2020 and 2021 respectively, following a surplus in 2019 (0.5% of GDP).
Focus on Sectors 2020
Focus on Sectors 2020 (available here) is a series of sectoral reports produced by the Department of Enterprise, Trade and Employment (DETE) that present concise overviews of 16 key sectors of the economy, encompassing both exporting and locally trading activities, and outline some initial indications of the impact of COVID-19 on these sectors.
The impact of COVID-19 has not been uniform across areas of economic activity and affected sectors will continue to face challenges and viability concerns due to ongoing distancing requirements, changed consumer behaviour and lower demand. The outlook for internationally trading sectors is also uncertain and will depend on developments in export markets.
As the full extent of the impact of the pandemic on global and national economies continues to unfold and it is still too early to assess the medium-to-long-term implications of COVID-19, these sectoral reports present an assessment at a point in time.
The finalisation of the EU-UK Trade and Cooperation Agreement on Christmas Eve, together with the Withdrawal Agreement, including the Protocol on Ireland/Northern Ireland, means that Ireland’s key objectives in the Brexit process have been achieved, in particular:
– protection of the Good Friday Agreement and the gains of the peace process, including avoiding a hard border on the island of Ireland;
– ensuring the best possible outcome for trade and the economy, notably tariff and quota free trade with the UK and protection of Ireland’s place in the Single Market;
– maintenance of the Common Travel Area;
– our continued commitment to our place at the heart of Europe
as well as a context that enables the bilateral relationship between Ireland and the UK to develop positively into the future.
The Irish government warmly welcomed this outcome, which is a significant achievement.
The agreement reached is fundamentally in Ireland’s interest. It provides for no tariffs and quotas on the more than €1bn worth of trade each week between Ireland and the UK in goods and services (total Ireland-UK trade in 2019 was worth €92 billion), creates a new stable relationship with the UK for the Irish Transport and energy sectors, and ensures cooperation between police services continues. Crucially, this deal means that our trade in goods and agri-food with Great Britain will not be subject to costly tariffs. It also protects the Single Market that is so important for our future prosperity and ensures fair competition for Irish businesses.
The outcome on fisheries was a difficult compromise and the Government will work to ensure that the fisheries sector and coastal communities that depend on it are supported in the period ahead.
It is important to note that the agreement does not replicate the status quo. The UK’s decision to leave the EU means that the EU-UK relationship cannot be as close as it was. This means that it remains absolutely vital for businesses and citizens to prepare for the changes that came into effect on 1 January, especially as regards new checks and controls for goods moving from, to or through Great Britain. The seamless trade which has existed up to now will not continue. Even with the Agreement in place, the Government has activated its Day One / Week One plans to manage the impacts of the end of the transition period. The key Government Departments and Agencies have set up advice lines and call centres to support businesses and citizens with Brexit-related queries.
The EU and UK now have an agreed approach on all issues relating the Protocol on Ireland and Northern Ireland, and we look forward to close cooperation on the full and effective implementation of the Protocol. The agreement provides a positive context for the Protocol and will simplify implementation in a number of key areas.
The Government has put substantial time and resources into preparing for Brexit, making it clear at all points that, because of the sheer scale and interconnectedness of our relationship with the UK, there will still be disruption despite all the preparations. The aim was always to mitigate the risks and reduce the impact of Brexit on Ireland’s economy and citizens, using all available legislative, financial, administrative and advisory tools.
Budget 2021 allocates unprecedented resources to confronting the twin challenges of COVID-19 and Brexit. €340 million is allocated in the budget for Brexit-related supports. Taking Budget 2021 into account, total Brexit related expenditure is now over €1 billion. The most visible element is the new infrastructure at Dublin Port, Rosslare Europort and Dublin Airport. The capacity of customs and other ICT systems has also been greatly enhanced to assist managing the expected twelve-fold increase in annual import and export declarations from approximately 1.6 million per annum to in excess of 20 million from 2021. Provision has also been made to deploy some 1,500 staff to support and carry out the increased checks and controls. A number of new direct ferry services between Ireland and the EU have also come on stream in the last year to offset use of the UK land bridge.
The Government has put in place extensive financial supports for sectors over recent years to assist businesses prepare for and mitigate the impacts of Brexit. The EU’s Brexit Adjustment Reserve will also be available to support the worst affected sectors. The 2020 Brexit Act provides for postponed accounting for VAT and up to €9,000 is available per eligible employee placed in a customs role. Skillnet Ireland rolled out a free Clear Customs training programme. Enterprise Ireland, Bord Bia, the Local Enterprise Offices and InterTradeIreland all provide a range of supports. This work will not stop now that Brexit has happened. All departments and agencies will continue to support and advise.
Budget 2021 was announced on 13 Oct 2020. €8.5 billion will be spent on supporting people and businesses affected by COVID-19. In summary, this includes:
- €1.9 billion for personal protective equipment (PPE) and to increase testing capacity
- €3.2 billion to support people through the COVID Pandemic Unemployment Payment (PUP) and the Employment Wage Subsidy Scheme (EWSS)
- €100 million to support businesses affected by COVID-19
- €2.1 billion for a ‘contingency reserve’ for use if needed · Reducing VAT for the tourism and hospitality sectors from 13.5% to 9%
- €232 million to help schools make their classrooms safe for students
- €395 million to help transport services run at reduced capacit
A Recovery Fund of €3.4 billion will be available to support the economy where needed in response to both COVID-19 and Brexit. It will be held in reserve and focus on three main areas: infrastructure development, reskilling and retraining, supporting investment and jobs.
The Budget was prepared on the assumption that there would be no bilateral trade deal between the UK and EU and therefore provided €340 million for Brexit measures. A further €100 million was provided to departments for Brexit supports.
Other selected measures include (full details here):
- The carbon tax on fuel will from €26 per tonne to €33.50 per tonne
- The total social protection budget in 2021 will be €25.126 billion, of this €3.18 billion is COVID-19 related expenditure
- The qualifying age for a State pension will continue to be 66
- €10 million will be provided for employment supports for people who are unemployed, with specific focus on youth unemployment
- An additional €4 billion is provided for health services to continue the COVID-19 action plan and increase long-term capacity
- 16,000 additional posts will be created in the health sector
- €100 million will be provided for disability measures
- Parents leave and Benefit will be extended by 3 weeks from April 2021 for both parents
- The Employment Wage Subsidy Scheme will continue until 31 March 2021. Supports under a similar scheme are likely to continue from 1 April 2021
- The Covid Enterprise Support Grant payments have been extended until 31 March 2021. The grant is worth up to €1,000 and is aimed at sole traders who got the Government’s Restart Grant Plus
- A new COVID Restrictions Support Scheme (CRSS) has been set up, aimed at businesses impacted by Covid-19 restrictions
- The Rainy Day Fund of €1.5 billion will be used in full, including €210 million for the rollout of the National Broadband Plan (NBP) and €500 million for the Shared Island Initiative
- €8.8bn for the Department of Education, €3.3 billion for housing in 2021, €3.5 billion was allocated to the Department of Transport, €3 billion for the Department of Justice.
Mother and Baby Homes Commission of Investigation
On 12 Jan 2021, the government approved the publication of the Final Report of the Commission of Investigation (Mother and Baby Homes and certain related matters). In publishing the report, the government paid tribute to the former residents of these institutions; acknowledged their courage and thanked them for their testimony. Difficult though this report may be, it is hoped that its pages provide acknowledgement, recognition, truth and, through this, healing.
The work of the Commission has shed an important light into a dark and difficult chapter of very recent Irish history – a history that is living memory for so many of our citizens today.
Over the weeks and months ahead, the government will give very careful and detailed consideration to the report. It will do so with a view to developing a comprehensive Government Action Plan spanning eight themes:
- a survivor-centred approach
- access to personal information
- archiving and databases
- education and research
- restorative recognition
- dignified burial
Read Global Irish Newsletter January 2021
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