Category Archives: Current Affairs

Budget 2021: What We Know So Far

By Paul Ralph

  • Minister announces no changes to PAYE, USC or PRSI.
  • Central Bank Governor Gabriel Makhlouf calls for path to “sustainable debt” and a focus on building resilience to future shocks.
  • IBEC lobbies for gradual tapering of business supports into 2021 as opposed to a “cliff-edge” end.

Last Wednesday, the Minister for Finance Paschal Donohoe confirmed that there would be no changes to income tax, USC or PRSI. At a press briefing he explained that cabinet had agreed that increases in taxation would be counterproductive. The Minister wants to “give confidence to those earning income or who a have level of deposits in our economy” in a time of “heightened economic uncertainty”. The main focus of the government is the management of the Covid-19 crisis and the looming prospect of a no-deal Brexit at the end of the year. This was made clear when the Minister explained that only “future budgets” would be guided by the commitments made in the Programme for Government agreed between the three governing parties. 

Minister Donohoe declined to rule out any possible changes to welfare payments.

Donohoe’s Fianna Fáil counterpart, Minister for Public Expenditure and Reform Michael McGrath said that government spending this year would be 23% higher than forecasted due to the unprecedented scale of government intervention in the economy due to the Covid-19 pandemic.   

The unpredictability of the current crisis is adding to the difficulty of planning a budget. Speaking to RTÉ news on Wednesday, Minister McGrath said he was currently working with officials to ascertain how much extra spending will be required next year for schools, the health service, new college places and the additional costs of reduced capacity public transport.   

On the same day, the Governor of the Central Bank Gabriel Makhlouf wrote to the Minister for Finance in his pre-Budget letter outlining what policy needs to focus on. In the letter, the Governor outlined three goals of policy:

  • Policy should focus on “supporting the productive capacity of the economy”.
  • Path to lower and sustainable debt will eventually have to be forged.
  • Continued “focus on building resilience to future shocks”.

Regarding the first point, Minister Donohoe has yet to introduce any labour market activation policies such as new training programmes. He is instead opting for the continuation of a reduced Pandemic Unemployment Payment scheme until the end of the year. This has received condemnation from the opposition with Sinn Féin’s housing spokesperson Eoin Ó Broin calling for the reintroduction of the €350 weekly payment in light of increased restrictions.  

The Central Bank Governor also advised against supporting loss-making enterprises, arguing that it was “not in the community’s interest”. However, it will be difficult for the government to distinguish what firms had an unsustainable business model entering this recession given its nature. The Governor recommended that the Government make provisions for business support grants. Also, he expects that debt will be an unattractive prospect for many SMEs because of the “scarring effect” of the previous crisis, banks’ reduced lending appetite and any debt overhang during the recovery. So far, the government has not yet hinted at any changes for the whole economy after Level 3 restrictions were introduced in Dublin last Friday. Nonetheless, the government committed to an extra €30 million in aid for businesses in the Capital.    

Covid-19 restrictions have hit SMEs extremely hard. The Government’s current emergency supports are due to end in the first half of 2021. In IBEC’s pre-budget submission they call for provisions to be made for the tapering of supports to avoid a cliff edge for thousands of businesses. The group said that the package of supports would need to be in the region of €6 billion on top of the €20 billion that will have been spent by the government on business supports by the first half of 2021.

According to IBEC’s chief economist, Ger Brady, who was speaking at the launch of the group’s pre-budget submission, the Government will run a deficit this year of about €30 billion. To give this figure more context, in 2019 there was a small surplus of €1.5 billion. The last time the deficit was so large was in 2011 when it hit €30.5 billion, starkly illustrating the extent to which the Irish economy is now reliant on government stimulus. 

Landing in Trouble: Ryanair's Position Amid Coronavirus Meltdown

By Robert Tolan

Friday saw Ryanair CEO, Michael O’Leary, announce a temporary 50% pay cut for all employees, including executives, in an effort to bolster its balance sheet amidst the uncertainty of the situation sweeping the world. Given the trajectory of its share price, now €8.81, a sobering 50% decline compared to its January price, the terrain ahead may be looking worse for shareholders.

O’Leary’s decision was merely an attempt to slow down the bleeding that started last week as deaths from Corona virus soared. International travel has now been brought into question which brings problems of its own for air travel within Europe’s Schengen area, the largest revenue maker for Ryanair, and indeed uncharted territory for free movement. As the European economy is stuck in gear for the foreseeable future, O’Leary has hinted at the possibility of future redundancies.

    The threat of heads rolling within the company probably could have come a little sooner. The current debacle is not a cause but rather a symptom of deeper issues within the company. Consider the following facts; it traded at a high of €18.41 almost two years ago, the price has been down trending since, Ryanair has undergone a major re brand, profits have stagnated despite increasing passenger numbers and industrial relations issues have become a mainstay of the company.

 With €4bn in cash equivalents the company will not be able to weather the most adverse pandemic scenario, the European economy stalling well into the summer or even later, and so some sort of guillotine must be brought to the stage. The maverick O’Leary must return for his company’s fortunes to reverse.

    The more liberal of observers will say Ryanair ought to wait out for government support of some sort. This is entirely unreasonable. The government assistance Ireland could afford is not enough to keep a pan-European airline afloat and the EU’s bureaucracy and failure to codify an approach to assisting businesses in ‘black swan’ events such as pandemics mean neither fig leaf will come in time. Ryanair could find itself occupying the grave beside Flybe, which was offered government support that proved fruitless, if it is not careful.

    This would cost thousands of direct jobs and tens of thousands of indirect jobs. The cuts required in the short-term would amount to a few hundred job losses and indeed those people affected would be entitled to redundancy payments. Certainly this act could ease industrial relations woes for the time being as the seriousness of the situation facing the company strikes employees. Only then will investors change their minds on Ryanair and see value in the €8-10 range which will recapitalise the company.

    It is also advisable that O’Leary reduce the number of subsidiaries, now 11, to fortify the company’s financials. As significant amounts have been ploughed into the recently acquired Laudamotion and the 1-year old Malta Air, merging these, for instance, offers the most sensible way of achieving economies of scale. There appears to be far too many duplicate processes concerning HR and marketing across the group which must be eliminated for the company to once again become an investor favourite.

    Regardless of the action taken by Ryanair, it is becoming increasingly apparent the Irish economy needs activist investors for its most prominent companies to flourish. If it were US-based, it is unlikely it would have escaped the clutches of value hungry investors like Carl Icahn or David Einhorn. There is certainly plenty of value to be found in Ryanair, there is still a need for a low-cost airline, but the execution of the business model has deteriorated over the years. The best antidote to this is somebody willing to force the necessary, and in this case obvious changes, who is willing to take the decision O’Leary has in recent years shied away from. Failing this, thousands of jobs rather than a few hundred may be lost.

Coronavirus Worries Sink Stock Markets Worldwide

Stock markets tumbled on Monday as the number of Coronavirus (now officially known as COVID-19) cases increased across the world.

As the centre of the outbreak of the virus, China continues to suffer more than anywhere else. The overwhelming majority of the worldwide cases are still in China, forcing authorities into a frenzy. People are unable to travel for work and millions are stuck in quarantine. American companies with a large presence in China, such as Apple and Nike, are failing to meet revenue projections and are bringing the struggles in China over to U.S. markets.

In such a globalised world, both the health and economic impact of the virus has spread very quickly. Other Asian countries such as Japan, Singapore, and South Korea are growing in fear of what the Coronavirus may bring. Outbreaks in Iran and Italy have shown that the virus is not as well-contained as had previously been thought. Italy’s inclusion in the borderless Schengen Area also plays into fears about the further spread of the virus. Although they have stated it is not a pandemic yet, the WHO has said that the world should prepare for one. Such a statement can only worsen the attitudes of investors.

Analysts believe that the decline in markets is due to the shock in the global supply chain. For example, in the case of companies like Apple and Nike, an absence of manufacturing in China has led to lower production of iPhones or sneakers, interfering with what otherwise would have been a greater number of products to transport and sell across the world. Because there are so many companies that can be involved in any supply chain, negative effects of the virus are being felt all over the business world.

The Nikkei 225, the main stock market index in Japan, closed down 3.34% on 25 February. The FTSE 100 Index in London had its worst single-day performance on Monday since the 2016 Brexit referendum. In New York, the NASDAQ-100 Index NDX opened the week down nearly 400 points (4%) from its closing on Friday the 21st. The Dow Jones has fallen over 1,400 points over the course of both Monday and Tuesday.

While the equity markets have fallen worldwide, investors have flocked to much safer assets. The prices of gold and bonds have risen suddenly as investors have moved their money to prevent any further losses. The rising prices of “safe-haven” assets have coincided with the yield of the 10-year U.S. Treasury note, a benchmark in the pricing of fixed-income securities, falling to a record low on Tuesday.

The shift towards safe-haven assets demonstrates a lack of trust in the stock market amidst the uncertainty of the Coronavirus. There are many that worry that this could be the beginning of the end of nearly a decade of strong growth worldwide. It is still far too early to tell if the world economy is actually entering a decline but providing that authorities, particularly in China, can contain and relieve the anxiety around the virus, stock markets should return to growth. However, if the virus is harder to contain than thought and it takes several more months to subdue, the damage may be too much for economies to overcome. Regardless of how the virus is to be handled going forward, it is nearly impossible to know that there is a recession until it is too late.

A Long Road Ahead? Here’s what happened when the 33rd Dáil Convened Today

  • This afternoon the 33rd Dáil convened for the first time, with 48 newly elected and 112 returning TDs.
  • No leader secured the required number of votes to become Taoiseach today, and there are differing arguments as to how long talks on the formation of a new government will last.
  • Fianna Fáil TD Seán Ó Fearghaíl beat independent Denis Naughten and was re-elected as Ceann Comhairle, meaning Fianna Fáil’s seats are now on a level with those of Sinn Féin at 37.

Today the 33rd Dáil convened with the agenda of electing the Ceann Comhairle and seeing through the Taoiseach nomination process, which entails a vote among all TDs on candidates put forward for Taoiseach.

None of the four leaders that were nominated to become Taoiseach – Mary Lou McDonald of Sinn Féin, Micheál Martin of Fianna Fáil, Leo Varadkar of Fine Gael or Eamon Ryan of the Green Party – conjured up the 80 votes required to win. This is due to the lack of success thus far in inter-party discussions to form a coalition or come to any sort of agreement on how the next government should look following the general election on February 8th, which returned no clear majority. The results of the nomination process instead simply give an indication of the level of support for the main parties’ respective candidates among TDs.

Leo Varadkar received 36 votes in favour of his becoming Taoiseach, Micheál Martin received 41 votes, Mary Lou McDonald received 45 votes and Eamon Ryan received 12 votes. With none hitting the 80 vote threshold, the Dáil will now be suspended and Leo Varadkar will remain as a caretaker Taoiseach.

Sinn Féin’s Mary Lou McDonald benefitted from the support of 5 Solidarity People Before Profit TDs and a handful of left-leaning independents. The Social Democrats chose to abstain from voting for any candidate for Taoiseach, criticizing the process as a “popularity contest”, which is a dent to Mary Lou McDonald’s numbers as she would have been hoping to secure the support of all smaller left-leaning parties. However her party will surely be buoyed by today’s result as they enter into the coming negotiations, however long they may last.

In the election for Ceann Comhairle, Fianna Fáil TD Seán Ó Fearghaíl beat independent Denis Naughten and was re-elected, meaning Fianna Fáil’s seats are on a level with those of Sinn Féin at 37. Fianna Fáil TD Michael McGrath stated that he believes the loss of the seat will have little impact on their ability to play a key role in the formation of a government.

Fine Gael, with their 35 seats, appear intent on leading the opposition in the next government, with TD Richard Bruton suggesting that such an outcome would present an opportunity for the party to reflect on their weaknesses. TD Simon Harris reiterated his party’s position of ruling out any potential coalition with Sinn Féin, and stated that the impetus to form a government was on “the party that has won the most votes – Sinn Féin – and the party that won the most seats – Fianna Fáil.” Leo Varadkar, however, has not ruled out the prospect of his party forming an alliance with Fianna Fáil.

Micheál Martin believes that talks in relation to the formation of a new government could last up to two months, which has recent precedent given the 70 day wait for the formation of a new government in 2016. Fellow Fianna Fáil TD Michael McGrath is more optimistic and suggests it is more a matter of weeks. Fianna Fáil maintain that they have ruled out a coalition government with Sinn Féin. Sinn Féin, however, suggest they are open to negotiating with all parties.

Meetings between party leaders will intensify in the coming days as the Dáil is suspended and discussions on how to form a government begin in earnest. There remain numerous possibilities on the outcome of such talks. There may be a minority government made up of left-leaning parties led by Sinn Féin, a minority Fianna Fáil and Green Party coalition bolstered by a confidence-and-supply agreement with Fine Gael, or perhaps a Fianna Fáil and Fine Gael alliance. It’ll be a long road of debate and compromise and intra-party bickering. And if discussions end up fruitless, we may be headed for another general election.

“We have a deal!” But where to next?

Just as fears of a no-deal Brexit were reaching their peak, news came from Brussels yesterday that a deal is finally reached.

Last Thursday Boris Johnson, the prime minister of the UK, had a semi-formal meeting with Leo Varadkar in the Thornton Manor. Although no one really expected this would lead to any kind of breakthrough, the results were rather surprising. When the two came out of the private meeting room with a smile, declaring that they see “a pathway to a deal”, the exchange rate of pound sterling gained more than 2% against the US dollar on that very day. One week later, the EU passed the new Brexit deal.

Yesterday was definitely a day to remember in both the UK and the EU’s history, but after the cheerful moment, we need to stop and think about what could happen next, and what the implications are.

Firstly, the deal is not final. It did pass a difficult hurdle – coming to an agreement with the EU. However, the hard journey through the British parliament has just begun. Boris Johnson has two days to seek allies before the unusual “Super Saturday” session in the House of Commons. Although Boris believes the deal is of the best interest for both parties and is quite confident about the results of the voting, analysts hold different opinions. Sporting Index, a lottery company who successfully predicted the results of previous Brexit votes, have sent out an email estimating the “Yes” vote would be 313 while Boris needs 320 to pass the deal in the British parliament.

In one scenario, the deal will be passed in the British Parliament this Saturday. This will mean no hard border between Ireland and Northern Ireland, and the rights of EU citizens in the UK will be protected (as will those of UK citizens living in the EU). The UK will leave the customs union as a whole, while Northern Ireland will still remain an “entry point”. For most of us life will remain the same, except we might notice that grocery shopping seems a bit more expensive. Establishing the UK to EU “entry point” on the island is set to make Ireland more of a focus area between the two, which will give rise to both opportunities and challenges. Dublin had already seen big names such as Travelers Insurance Company moving its European business to Ireland to avoid risks associated with Brexit. If the deal is passed and Brexit is official, more London-based international companies will start seeking new bases in the EU, and Ireland is no doubt one of the most appealing options.

If the deal is not passed by the House of Commons, the Benn Act will require the PM to seek an extension of the Brexit date from the EU. For businesses in the UK, this will amount to another period of uncertainty and continuous economic stagnation. For the past three years, uncertainty has caused numerous British companies and investors to suffer, and has seen the bankruptcy of long-standing companies such as Thomas Cook. The Benn Act may appear to be inconsequential for the EU from a political perspective – or even beneficial. However, given the significance of the UK in the global market, the ramifications of further uncertainty for businesses operating there may result in harm for industry in the EU.

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