Will Taoiseach’s call for grants not debt carry through to the July stimulus?

20 Jul 2020207 Views

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In Brussels, the Irish Government is advocating for grants not debt to support economies recovering from the Covid-19 crisis, while companies at home would like the same consideration, writes Elaine Burke.

The first message came a couple of weeks ago. ‘Such and such local café is closed’, accompanied with a sad emoji. Then a few days later you receive another. That cute corner restaurant is gone. The nearby independent hair salon has shut up shop. Your favourite small pub won’t be reopening. Shutters are falling on small businesses and the sad news is rippling across communities.

While the news of small business closures is still just a trickle, the concern is that this may be the beginning of a tidal wave. Hopes rest heavily on the Government’s July stimulus package, which will include an update on supports already in place such as the Wage Subsidy Scheme.

Meanwhile, Taoiseach Michéal Martin, TD, finds himself stuck in Brussels as extended days of debate among EU leaders ran late into Sunday night with no resolution reached.

The EU Summit is now in its fourth day trying to agree on a proposed €750bn Covid-19 recovery fund. The sticking point is how much of that fund will comprise non-repayable grants.

With the EU-wide economy forecast to contract by a record 8.3pc this year, substantial support is needed to keep economies from the brink of collapse. Ideally, most of the EU recovery funding will come as grants not debt, to be recouped through levies such as the incoming plastic tax. However, this has proven a hard sell for a coalition known as the ‘Frugals’ (the Netherlands, Sweden, Austria, Denmark and Finland).

‘The more debt small companies take on, the more likely we are to end up with a sector full of zombie companies shuffling under the weight of never-ending Covid debt’

At home, small businesses in Ireland would also likely appreciate the ‘grants not debt’ approach to their supports.

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The nature of the bureaucratic applications process has meant a slow start for businesses trying to even begin drawing down the various packages announced for support during this crisis, but even once that hurdle is overcome they’re not out of the woods yet.

Support for SMEs in Ireland right now largely equates to debt, and the more of it they take on the more likely we are to end up with a small business sector packed with zombie companies shuffling under the weight of never-ending Covid debt.

Even the Wage Subsidy Scheme, while a welcome relief to those whose jobs would have folded if not for its existence, comes with a debt to pay to the taxman. This goes direct to employees, many of whom will likely have been shocked by the tax on their June pay packet.

Right as the Government was awaiting formation, and days before the end-of-month payday for many, Revenue flipped a switch to put recipients of this scheme back to a ‘week one’ tax basis with no prior warning. If you were lucky, your financial controller may have been able to give you a few days’ notice of a lighter pay packet. If not, you wouldn’t have even seen news of this change until long after the tax was taken and you were left short.

There is a lot to be said for the right moves Ireland has made in these unprecedented times – the recent decision to pause reopening plans while Covid-19 cases start creeping back up is among them – but there is still room for improvement.

With the country’s leader advocating his support for grants not debt in Europe, one would expect he will be bringing that philosophy to the yet-to-be-announced stimulus package at home. Otherwise, those texts will keep coming.

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Elaine Burke is the editor of Siliconrepublic.com

editorial@siliconrepublic.com