In the middle of a crisis, it can be hard to focus on anything but the present. It’s just one step at a time for so many at the moment, says KPMG partner Liam Lynch.
But a time comes when we need to look forward. We will not be alone as a country in finding our way back, but we have shown before that we have the energy and creativity as a nation to help lead the way and contribute to the global recovery.
The question of how and when we reopen normal human discourse, and hence the economy, is firstly one for the public health experts who are guiding us through this crisis. After that, it becomes a behavioural, economic and business issue. No one has ever put the world economy into stasis before, there is no playbook for reanimating it in short order.
As I see it, there are three distinct stages to what we need to do. First there is the jump start, which much like putting jump leads on a car battery will require a powerful external agent. Next there is the recovery proper, and finally there is the longer-term sustainable business environment that is created. All of this requires a close partnership between government and business.
We won’t have an effective recovery or a sustainable long term environment unless we get the jump start right. At present, keeping supply lines open and cash flowing are paramount. Governments around the world, including our own, have recognised the importance of cash flow, and business has responded. Cash reserves in companies are not just resources to pay staff, but also to keep paying suppliers even as business contracts, and the continued availability of funding to businesses of all sizes is vital to giving those businesses the confidence to keep that cash flowing.
Tax measures
In reopening the economy we are all on a steep learning curve. But however we do this, we must be ambitious. To encourage debate, here are some ideas for tax measures we might consider. These will not come cheap, but they will pay for themselves by shortening the path to recovery.
- Apply zero rate VAT on all sales of certain businesses most affected by the lockdown for the first month or so of them reopening – for example restaurants, cafes, bars, retail (apart from food) etc. In this way restart capital can be indiscriminately injected into businesses all over the country, helping them recover and putting them back on a tax paying basis in the shortest possible time. This may need EU approval, but equally this is an EU problem that needs EU solutions.
- Reapply the 9% VAT rate on certain tourist and hospitality services for a limited period to bring these sectors back up to scale and competitiveness, say to 31 December 2022.
- Abolish local authority rates for all of 2020 for any business that has had their turnover severely impacted by the lockdown, and fund local authorities for the loss in revenues out of central exchequer funds.
- Clarify how the COVID-19 wage subsidy payments will be taxed on the individual recipients. Currently these are essentially a combination of a State subsidy and a loan in the form of a deferral of the related tax payments (the individuals must ultimately pay income tax on the payments even though PAYE is not applied now). Make this tax deferral permanent, thus giving individuals the confidence to spend earlier.
- Encourage the transfer of cash from savings held by senior to younger generations to ignite current spending and business continuation and formation, again ultimately driving income tax and VAT revenue. Do this by replacing all current inheritance and gift tax free thresholds with a single annual threshold for everyone of, for example, €100,000. If unused this annual amount could be rolled up for a maximum of five years to provide for a larger threshold equivalent to the value of a dwelling house.
- Affirm our national corporation tax strategy. It has created vibrant companies that have continued to trade unhindered in essential goods such as ventilators throughout this crisis. The importance of our corporation tax regime in creating and maintaining a true free trade centre producing world class quality products is something of which we can be proud and which we should continue to protect.
Commission on Taxation
Action is needed now. Several political parties have already proposed establishing a Commission on Taxation. It should be set up immediately, with two interlinked terms of reference: the first to debate and report on ideas to jump start the economy and to report quickly; the second to take some time to consider and propose longer term policies for a prosperous and sustainable Ireland.
We will recover from this crisis and we will prosper by harnessing all of the immense talent, resilience and creativity at our disposal, and, crucially, with government and business standing together.
An abridged version of this article appeared in the Irish Independent and it is reproduced here with their kind permission.
