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Stimulus plan for economy to be published in July

The draft Programme for Government includes details of a stimulus plan for the economy to be published in July. 

It also outlines the parameters of a National Economic Plan which will be published alongside Budget 2021.  

At that time, a “medium term roadmap” will be set out to plan a reduction in the budget deficit and a “return to a broadly balanced budget”. 

The document noted that taxation as well as expenditure measures will be used to close the deficit and fund public services if required. 

It said that any tax rises would be focused on taxes like the carbon tax, sugar tax and a possible plastics tax. 

The document commits to maintaining the 12.5% corporation tax and to continue co-operation on tax reform with the OECD. 

Meanwhile, the draft programme also said the state should not sell its shares in the country’s banks until it is likely to recoup a significant portion, if not all, of its investment. 

The Government continues to hold a majority stake in AIB and Permanent TSB, and a minority holding in Bank of Ireland, the three domestically owned lenders to survive a banking crash a decade ago. 

The value of the banks’ shares have fallen significantly in the past two years.

Small and medium-sized enterprises (SME) will form a major part of the economic stimulus package, including a new SME taskforce to help small firms recover from the crisis brought on by the Covid-19 pandemic.

There will also be sector specific responses to help businesses get back on their feet, as well as moves to make the public procurement process more accessible for SMEs.

Building on the forced move to working from home during the pandemic restrictions, the document contains a big focus on enabling remote working in a way that would support balanced development.

The development of stronger links between third-level education and SMEs is also a part of the programme, as are supports for the digitalisation of small firms.

Enacting legislation immediately to help SMEs get access to cheaper finance would also be an urgent priority of the plan, if the other outstanding elements of the negotiations can be agreed.

On the economy, negotiators have agreed to establish a Commission on Welfare and Taxation that would independently consider how best the tax system can support economic activity and promote increased employment, while at the same time ensuring there are enough resources available to meet the costs of public services and welfare supports in the medium and longer term.

The document also contains a commitment to review capital gains tax rates in each budget over the next five-years. 

Encouragement of a greater take-up of the R&D tax credit by small domestic companies is also part of the plan.

An economist from University College Cork has said that as the public health crisis abates, the expectation is that government borrowing will reduce and the shift will turn towards stimulating economic growth.

Seamus Coffey, a lecturer in economics at University College Cork and a former chair of the Irish Fiscal Advisory Council, told Morning Ireland that once a growth pattern slowly returns to the economy there will be scope to do implement some of the new measures in the expected document from Government Buildings. 

Mr Coffey said that the deficit faced by the new government is linked to the current shock in the economy and will reduce as emergency measures are scaled back. 

He said there will be concerns about the increase in debt and as long as the emergency measures are temporary the borrowings can be managed. 

Mr Coffey said that any decisions about measures to be introduced on a permanent basis will need to be backed up by funding in the medium term to fund them on an “every year basis”. 

SMEs will be supported for now with emergency measures and cash grants but over the next few years Mr Coffey said a stimulus package could be front loaded to boost businesses. 

Mr Coffey said investment could be targeted at sectors such as the construction industry, while a rise in household savings could lead to a consumption boom.

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