When the medical emergency of the coronavirus pandemic is over, the country will still have to face a daunting challenge to support the economy. The effects of the disruption caused by the exceptional measures to control the spread of the epidemic are beginning to become evident for various businesses, mainly those connected with tourism.
The prime minister and minister of finance have announced some fiscal measures aimed to help the cash flow of operators in the tourism industry. Moratoria on the payment of VAT, national insurance and provisional tax for March and April were to be expected. However, one hopes that the term of these moratoria is extended if, as is expected, the medical emergency persists for a few more months.
The focus of fiscal support to struggling businesses should be on preserving jobs. This strategy makes sense both because those who will be suffering the brunt of this crisis are expected to be low-paid employees and because the revival of various distressed economic activities will depend on the talent and skills of people that need to be kept in employment when the turnaround occurs.
The finance minister’s comment on the preparation of a mini-budget is good news. The recovery plan for the economy needs to be continuously revised as the coronavirus epidemic evolves and its effects on the economy start to be measured.
Luckily, the starting point for a recovery from an economic perspective is good. Up to some weeks ago, the economy was growing at an impressive rate. This has helped the public coffers by reducing the debt-to-GDP ratio to a healthy 40 per cent. The focus of the finance minister when defining the measures in the forthcoming mini-budget should be on reducing taxation on work in those industries that have been worst affected by this crisis. Public debt will inevitably start to grow again but this is a price worth paying to prop up the economy.
The president of the European Commission, Ursula von der Leyen, has already signalled that the provisions of the Stability and Growth Pact will be suspended for some time to help countries confront this crisis with ample financial resources.
The financial services industry is in good health. There should be no problem for banks to provide the liquidity that viable business may need temporarily. The pool of liquidity in the banking system is substantial even if banks may require some form of government support to waive the conditions of lending that apply in normal times.
The government must have a plan in hand to revive the all-important tourism sector once we are given the all-clear.
We are certainly not living in normal times. We cannot abandon those who are most likely to suffer the brunt of the coronavirus epidemic. The country’s health needs to take precedence over anything else.
The government’s support for the economy, while focusing on the immediate needs of businesses to help them recover fast, should also plan for more investment in the medical infrastructure of the country.
With an ageing population, we may no longer be able to rely on good luck to deal with major medical crises.
The government must also ensure that its fiscal measures, while being prudent, must not amount to doing too little too late.