Submission on expenditure and the budgetary position written by Dr Tom McDonnell, Co-director at the NERI for the Covid-19 response committee.
The Covid-19 response committee is gathering submissions on a range of topics including on social protection policy and on public expenditure and fiscal policy. You can see our short written submission on expenditure and the budgetary position here.
The deficit in the public finances will be enormous this year and could very plausibly be 16% of GNI*. Even so, much of this represents once-off costs and is appropriate given the scale and nature of the crisis. Further shutdowns will mean even worse outcomes. Despite this, and unlike 2008-2012, there is very little chance of government borrowing costs becoming unsustainable. This is on account of the ECB's willingness to behave as a 'defacto' lender of last resort and on the very different approach being taken at an EU level.
The NERI will be publishing a series of papers on fiscal policy (ROI and NI) over the course of the summer. We will analyse the various options open to government over the next four plus budgets and offer our policy recommendations. Watch this space.