‘Too much stimulus cash is now saved in banks’ – Ibec
The Government has pumped too much cash to households during the Covid-19 crisis and should find a way to “extract” money that has ended up in savings accounts, according to the head of employers’ group Ibec.
Ibec chief executive Danny McCoy told an event organised by the Dublin Economics Workshop that the best way to pull Ireland out of recession is to mobilise some of the record €120bn of household savings and direct it into projects for civic good including infrastructure.
Mr McCoy said the Temporary Wage Subsidy Scheme and Pandemic Unemployment Payment paid many people to work from home or just stay at home.
He said the payments, while essential to maintain stability, have multiplied what already was a strong build-up of savings even before the pandemic. Those funds in savings are doing little good, he said, given the virtually non-existent interest rates on offer.
He said the Government was building a €30bn deficit so as to finance households at a moment when the nation really needs stronger investment in public infrastructure and services.
“We’ve managed to put too much money into the household sector – and the households have other demands,” he said. “They are items that need to be provided by the public sector, in terms of public infrastructure: housing, childcare, transportation. These are the kind of ‘public good’ types of features we need, ironically, to get the pendulum swinging back from households towards financing what people want.
“The problem with Covid is that the pendulum actually pushed the money – rightly, given the shock, to keep people staying at home – and exacerbated that problem even further,” he said. “The money has ended up very firmly in the household sector as the Government racks up debts.”
He asked: “How is the Government going to extract that money back from the households, to deliver that which the households profess to need and want? There must be smarter ways of mobilising households as part of the solution. If people don’t want to be faced with taxes and we’re not willing to confront them with taxes, can we think of more innovative schemes?”
Mr McCoy suggested that Ireland needed targeted public bonds to promote “not mere saving, but savings with a purpose”.
He suggested the public could be encouraged to buy interest-bearing bonds and raise funds for raising university standards, building public housing and transportation links, and achieving energy efficiency and climate action goals.
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