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Employers call for wage subsidy scheme to be expanded

The employers’ group Ibec has called on the Government to expand the employment wage subsidy scheme to include companies threatened by a no-trade deal Brexit.

In its latest quarterly Economic Outlook, Ibec also says the key to next week’s Budget will be unlocking “turbocharged” savings by households.

The employer’s group believes the key to the economy’s recovery, will be if workers from the “growing sectors” of the economy can spend their money locally.

It believes a way must be found to channel the record €10 billion in savings built up by households since the pandemic began, in order to get people back to work.

It warns that statutory redundancy applications were six times higher in August, than in the same month last year and that this may be the first sign of difficulties to come”.

IBEC is also worried about Brexit and wants to see companies exposed to its impact eligible for the wage subsidy scheme. 

In another sign the recovery in the economy over the summer may have slowed, the AIB Services Purchasing Managers Index shows new business for services companies has fallen at its fastest rate since June.

The business group says it believes the Irish economy is experiencing what has been dubbed internationally a “K-shaped” recovery from the pandemic. 

Some sectors are trading robustly through uncertainty, it points out, while others face a challenging outlook. 

This is emphasised by recent data showing that export trading remained robust in the second quarter while domestic demand collapsed by over a fifth. 

This is emphasised by recent data showing that export trading remained robust in the second quarter while domestic demand collapsed by over a fifth. 

In fact, Ireland ended the second quarter of 2020 as the only country in Europe not to experience an overall fall in goods and services exports. 

It is further exemplified by the finding that the fall in Gross Domestic Product in the second quarter was only one quarter the size of the fall in employment. 

The report author, Ibec’s chief economist Gerard Brady, points out that some export sectors are less labour intensive, but constitute a much larger share of economic output. 

That partly explains the robust tax returns to the Exchequer during the summer months which prompted the Finance Minister to reduce the deficit target for the full year in recent days. 

The nature of the employment hit also influenced the shape of the taxation outcome. 

“The sectors which saw the largest falls in employment – hospitality, personal services, and construction – accounted for 19% of employment, but only 9% of Income Tax or USC in 2019,” Mr Brady explained.  

“On the other hand, the industries which saw the smallest changes in employment in Q2 – manufacturing, ICT, and finance – account for 22.5% of employment, but 34% of income tax and USC,” he added. 

Employees in those latter sectors have, by and large, not been experiencing any adverse income effects and, given the lack of spending opportunities, have been saving much of their earnings in recent months.

The report concludes that Irish households saved €10 billion in the fist half of this year, with households now holding €20 billion more in the banks than they owe in debt. 

“This is a turnaround from a figure of minus €70 billion in 2008 and the key difference between this recession and the last,” Gerard Brady said. 

Ibec says its outlook for the year ahead is predicated on there being a “bare bones” Brexit trade deal hammered out in the coming months. 

The absence of a deal would result in a “further blow to fragile confidence” which would impair potential recovery in future years, the report warns. 

It adds that a no-deal Brexit could accentuate the gap between sectors, firms and households.

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