Government’s aim is jobs when it should be business.

The July Stimulus launched on 23rd July was the Government’s response to ‘get Ireland’s businesses back on their feet and get as many people as possible back to work quickly’. As can be seen from the eventual title of the government document – ‘July Jobs Stimulus’, the emphasis was on jobs. This is what we have come to expect from politicians, who in the main lack an understanding of basic economics and therefore put the cart before the horse, expecting jobs before business revival.

The ferocity of the COVID-19 pandemic has taken the whole world by surprise, wreaking havoc on our health system and our economy. In contrast to the previous crisis, the Government’s economic policy response has been swift and sizeable. Besides much-needed emergency spending on healthcare, the State had to activate short-time working arrangements that have supported income streams for many employees and eased labour costs for employers. 

In the short term, these measures have prevented mass layoffs. However, as impressive as these measures have been, they will not be enough to ensure a rapid recovery and avoid permanent damage to the Irish economy. Short-time work schemes must be time-limited and cannot cover full wages, or every employment type. Inevitably unemployment will continue to be a problem with low-skilled and temporary workers likely to be hit the hardest. Let there be no mistaking the fact that this virus affected economy is with us for at least two years, even with a swift covid vaccine.

So, while the Government have rightly concentrated their efforts on job retention in the initial months, their efforts must now necessarily be targeted on businesses, the creators of jobs, to ensure that they survive and eventually bring the economy back to full employment.  

For companies, the longer production is stalled, liquidity problems will increase, and the use of loan financing is difficult to sustain over time. Piling increased debt on already over-stretched balance sheets is not a durable solution, especially in the context of the uncertainty and debilitating negative cash flow for many companies and SMEs in particular.

Where are the jobs that the Government wish to save? Small and medium businesses employ two out of every three employees and create 85% of all new jobs. They represent over 99% of businesses in Ireland. To limit the damage to the economy, to minimise downside risks and to advance the recovery, continued government policy support is necessary, particularly for business. The object of the exercise must be to protect international value chains, investment, employment, growth, and prosperity. The solution must be a combination of grants and inexpensive loans which have the potential of being ‘earned out’ over time.

In the national interest these businesses have been closed since March while their costs continued and therefore have been shipping losses, despite government wage subsidies. As the economy begins to reopen the expectation for many of these is that their sales will only gradually improve in the medium to long term. This will add to the loss burden of the SME and must be financed to ensure survival and job sustainability.

These SMEs have exhausted any cash reserves during lock-down and now urgently need liquidity to cover their state-imposed losses, both during lock-down and for the foreseeable future.

The amount of business grants included in the July Stimulus package is wholly inadequate and should be improved to allow these SMEs survive and maintain jobs. It is naïve and wrong to suggest that loans through a revamped Credit Guarantee Scheme will suffice. Piling more debt on existing debt is a poor substitute and smacks of laziness, a lack of innovation and a ‘be seen to do something’ attitude by this new Government.

Even the Taoiseach while in Brussels at EU summit was clear that “pouring debt on debt was not the way out of this”. SMEs need targeted grant aid without lots of conditions allowing them to pay their accumulated bills and recover quickly from their losses. These SMEs need cash to survive and then revive. This stimulus package has too little investment in business grants and too much expectation that small business is willing to borrow more.

Tailor-made support to help SMEs revive, grow, and innovate is essential. At all stages of development, small businesses struggle more than large enterprises and need support. The benefit of a thriving SME sector is thriving employment.

A fragile SME sector means a slow and protracted recovery and fewer jobs.

On the face of it the July Job Stimulus lacks the boost that SMEs need and will retard the recovery, while allowing some borderline enterprises to go to the wall with their attendant employees. Maybe the National Economic Plan and National Budget in October will attempt to correct this, even if it’s another four months wasted.  

The bottom line for Government is to remember what Parkinson called his Swedish law,

“Aim for prosperity and employment will follow. Aim for employment and you will get anything but prosperity".