DÁIL ÉIREANN COISTE SPEISIALTA UM FHREAGRA AR COVID-19 SPECIAL COMMITTEE ON COVID-19 RESPONSE Dé Máirt, 16 Meitheamh 2020 Tuesday, 16 June 2020 Tháinig an Coiste le chéile ag 11 a.m. The Committee met at 11 a.m. Comhaltaí a bhí i láthair / Members present: Teachtaí Dála / Deputies Richard Boyd Barrett,* Colm Brophy, Colm Burke, Mary Butler, Jennifer Carroll MacNeill, Matt Carthy, Michael Collins, David Cullinane, Pearse Doherty, Stephen Donnelly, Mairéad Farrell,* Norma Foley, Gary Gannon,+ Neasa Hourigan,* John McGuinness, Paul Murphy,* Ged Nash,+ Fergus O’Dowd, Róisín Shortall, Duncan Smith, Peadar Tóibín.+ * In éagmais / In the absence of Deputies Louise O’Reilly, Bríd Smith and Ossian Smyth. + In éagmais le haghaidh cuid den choiste / In the absence for part of the meeting of Depu- ties Matt Shanahan, Róisín Shortall and Duncan Smith. Teachta / Deputy Michael McNamara sa Chathaoir / in the Chair. 1 SCR Business of Special Committee Chairman: We have been notified that Deputies Farrell, Hourigan, Ó Cathasaigh, Paul Murphy, Boyd Barrett and Tóibín will substitute for their party colleagues today. Are the min- utes of 9 and 11 June agreed? Agreed. I will take the 20 items of correspondence received as noted. Members will have received written submissions for today’s meeting. Deputy Róisín Shortall: Did we get anything from the Central Bank? Chairman: The Central Bank is not coming in today, it is coming later, on 7 July. Today is the Irish Fiscal Advisory Council and the ESRI. Deputy John McGuinness: Is it possible that the questions which went unanswered on which we were to be sent written reply would be flagged, given the quantity of correspondence being received, if the clerk does not mind? Chairman: Okay. Deputy John McGuinness: Thanks. There was a written request from Seas Suas to come before the committee regarding childcare. I do not know whether the Chairman agreed to that but I would like to see that group come in. Chairman: We have not made a decision yet but we will consider it at the working group on Friday morning. Deputy John McGuinness: I ask that my interest be noted. Chairman: We will note it. If the Deputy wishes to participate in the meeting on Friday morning, he is welcome. If not, we will note his interest and support for having it in and take it from there. Deputy John McGuinness: Thank you. Chairman: Following the meeting of the committee’s working group last Friday, members have been circulated with the draft programme to the end of July. The following meetings have been agreed. We will have two sessions on Thursday this week where we will resume our ex- amination of the Covid outbreaks in nursing homes and in the afternoon, we will examine the impact of the pandemic on the Gaeltacht areas. The meeting will be addressed by the Minister of State, Seán Kyne. Next Tuesday, we will deal with issues relating to childcare and on Thurs- day we will have a meeting specifically on testing and tracing capabilities. We are also seeking approval from the Business Committee to have up to six sessions per week which may mean sitting on Fridays and we will start the examination of the return to education, including school transport. Is that agreed? Agreed. I have arranged for Deputy Mary Butler to chair the second session today, and I will chair the third. Covid-19: Impact on the Fiscal Position 2 16 JUNE 2020 Chairman: I welcome our witnesses on the impact of Covid-19 on the State’s fiscal posi- tion, with representatives of the Irish Fiscal Advisory Council. In the Dáil Chamber we will be joined by Dr. Eddie Casey, chief economist and head of secretariat and by video link from abroad by the following members of the Council: Mr. Sebastian Barnes, acting chairperson, and council members Ms Dawn Holland and Professor Michael McMahon. I can see everyone at least, which is a good start. Remote witnesses will have received a note on privilege. There is a constitutional ambigu- ity on the degree of privileges which remote witnesses enjoy. Persons giving evidence from another jurisdiction should also be mindful of their domestic statutory regime. Members are re- minded of the provisions in Standing Order 186 that the committee should refrain from inquir- ing into the merits of a policy or policies of the Government or a Minister of the Government or the merits of the objectives of such policies. We expect witnesses to answer questions asked by the committee clearly and with candour. Nevertheless, witnesses can and should expect to be treated fairly and with respect and consid- eration at all times in accordance with the witness protocol. If they have any concerns in that regard, I ask them to bring them to my attention immediately. I invite Mr. Barnes to make his opening statement and to please limit it to five minutes. That is what we usually do. His statement has been circulated. Mr. Sebastian Barnes: The council would like to thank the Chair and members of the committee for inviting us today. As you noted, Chairman, I am joined today by my council col- leagues, Ms Dawn Holland and Professor Michael McMahon, and we are joined in the Cham- ber by our chief economist, Dr. Eddie Casey, and also by Mr. Kevin Timoney, an economist on the fiscal council. Engagement with the Oireachtas is an extremely important part of the council’s work, in- cluding with the Committee on Budgetary Oversight in the previous Dáil. The council is an independent body established under the Fiscal Responsibility Act 2012. Its mandate is to en- dorse and assess the Government’s macroeconomic forecasts and its budgetary projections, and compliance with the fiscal rules and the fiscal stance. It is important to note that the coun- cil’s mandate is about the overall budgetary position rather than on individual tax measures or spending items. The Covid-19 crisis has had a huge impact on Ireland and internationally. Even in the first three months of the year, consumer spending is down by approximately 5%. Underlying do- mestic demand is expected to contract by between 7% and 17% this year. Approximately 26% of the workforce is currently either unemployed or on pandemic unemployment supports. The council’s fiscal assessment report, published on 27 May, provides an assessment of the fiscal impact of Covid-19. There is exceptionally high uncertainty at the moment about the health outcomes and the economic outcomes. To assess this, in the fiscal assessment report the council has outlined three scenarios to 2025 to help people’s thinking about this. In the “mild” scenario, conditions improve rapidly and lasting damage to the economy is limited. The “cen- tral” scenario builds on the official forecasts in the stability programme update, SPU, published by the Government in April. It is assumed that confinement measures are eased as planned, but with lasting impacts. In a “severe” scenario, there are repeated lockdowns and wider financial distress. These scenarios do not take into account major risks Ireland faces from Brexit or from corporation tax. 3 SCR In all scenarios, activity falls sharply and the crisis will have a lasting effect. The scenarios imply it would take two and a half to three years for the economy to return to pre-crisis levels of activity. By contrast, the economy took 11 years to recover after the financial crisis. In fiscal terms, the budget balance will moves sharply into deficit this year; the SPU pro- jected a deficit of 13% of GNI* this year, reflecting €7 billion of crisis-related spending and a much larger fall in tax revenue. This likely underestimates the impact on spending because it does not include the extension of support measures or any future fiscal stimulus package. While the fiscal balance will improve as the economy recovers, the central scenario implies that the deficit could still be approximately 3% of GNI* in 2025. The appropriate fiscal stance in response to this will evolve over the coming years in three broad phases. In phase 1, the immediate crisis, the Government should limit the negative im- pacts on health and on the economy. The council welcomes the measures taken to support the economy. These should continue as long as needed, although they may need to evolve to reflect changing needs. Phase 2 will be marked by the removal of most of the containment measures and the econ- omy will begin to recover, but investment and consumer spending will remain very weak and unemployment will remain high. The council assesses that a sizeable fiscal stimulus would be warranted during this phase to help support the recovery. Borrowing to support weak demand would be an appropriate countercyclical response to manage the economy. It should be tempo- rary, targeted and conditioned on the likely state of the economy. Public investment could play an important role. While some reprioritisation may be needed, at least maintaining the current level of spending would help support activity and boost long- term output. Excess capacity in the construction sector may create opportunities. In phase 3, the economy will settle into a new steady-state growth path. At this stage, the debt-to-GNI* ratio will be very high. The debt ratio could be in the range of 115% to 145% in 2021, up from just below 100% in 2019. Given the very high level of debt and lower revenues, fiscal adjustment is likely to be re- quired in phase 3 to put the debt-to-GNI* ratio on a downward path towards safer levels. A key factor is the low level of interest rates.