Interview with Mr. Paschal Donohoe TD, Minister of the Department for Finance, Government of Ireland

18 May Interview with Mr. Paschal Donohoe TD, Minister of the Department for Finance, Government of Ireland

Q: Could you share some insights with us regarding Ireland’s remarkable economic performance in 2020 and what your expectations for the coming 12 months are?

Paschal Donohoe TD (PS) : The combination of the supported domestic economy and our integration into global supply chains and the global economy helped the Irish economy do well, despite the very adverse circumstances of last year. First, we managed to support many parts of our domestic economy through the implementation of wage subsidy programs which allowed companies to continue to perform even though the way in which they could trade was severely limited due to the pandemic. That helped our domestic economy defend itself in incredibly challenging circumstances. Second, at the heart of the Irish economy is a diverse set of economic sectors characterized by a large service dimension. Inside that service sector, we have many companies that focus on exports. Ireland over many decades has built up strong export performance in parts of the global economy that have continued to do well, namely our ICT and pharmaceutical sectors.

Q: How would you characterize the current state of the national treasury and financial health?

(PS): Like many economies across Europe and across the world, we are now running large deficits to help our economy respond to the shock of the pandemic. The deficit for 2020 was approximately 5%, which was far higher than our country had experienced in our recent past. However, we have used it to fund additional investment in our health services and support measures to help insulate our domestic economy. Much of the increase in our deficit was driven by the need to support the Irish domestic economy in the form of income and enterprise support programs we put in place. The combined value of those programs across 2020 and early 2021 is nearly 12 billion euros. Though this may seem high, I believe it was the right policy decision to make.

Q: Could you give us a snapshot of government spending in the past year and highlight the most important areas targeted so far?

(PS): We have had two schemes that have been critical for businesses and citizens affected by the pandemic. One is called the COVID Restrictions Support Scheme (CRSS) which is a higher payment that is made available to companies that had to close their premises due to public health restrictions. What we have done is paid back those companies a percentage of their normal trading revenue to compensate them for the loss of turnover. We have now spent over 400 million euros on that initiative, and it has made a big difference to our hospitality sector –our restaurants, cafes, and hotels that were required to close. The other program that we brought in was the Pandemic Unemployment Payment, or the PUP, which paid a higher level of income replacement to citizens who lost their job during the pandemic. Many hundreds of thousands of our fellow citizens lost their jobs because their employer was required to close by the government. We, as a government, felt we had a higher level of responsibility to those citizens because they lost their job due to a public health decision. That payment has been effective in preventing an acceleration of poverty levels within our economy and preventing increased levels of inequality.

Q: How would you describe the FDI situation today? In what sectors do you see the best opportunities emerging?

(PS): Ireland continues to be an attractive country for foreign direct investment, and it has been an ongoing objective of Irish government policy now for nearly five decades to create an environment in which enterprise can flourish and in which not only international but also Irish companies want to invest in. This was one of the foundations of our economic performance across 2020. The sectors that we are prioritizing are indeed sectors that we have prioritized now for many years, such as life science in pharmaceuticals, and in ICT. Ireland has homed in on these areas for domestic innovation and for international investment.

Q: How much is Ireland expecting from the EU in terms of recovery support, and how will the country spend these funds? What is the government’s overall master plan?

(PS): The EU Recovery and Resilience fund is an important initiative for Europe, and Ireland has now become net contributors to the EU budget after many years of benefiting from it. In terms of our share of funding from the Recovery and Resilience fund, we anticipate that it will be approximately a billion euros, which will be a valuable contribution to our economic recovery. To be honest, it is only part of the investment that we will have to make in our economy for it to recover. Thankfully, we are in a position where we are able to fund our recovery efforts through our national borrowing and tax collection. We have not faced the economic difficulties with COVID that many other parts of Europe have. Our response to helping Ireland recover from COVID will certainly use the contribution from the RRF to aid our recovery, but it will not be as big a factor as it will be for many other countries.

Q: Could you elaborate a little on the areas you want to focus on as Eurogroup President, including enhancing the role of the Euro on the global stage?

(PS): The European project is a wonderful political project that depends on the cooperation and consent of its members. As President of the Eurogroup who has his origins in a small member of the European Union in Ireland, I am focused on working closely with all my colleagues in constant dialogue to understand their views and issues and to find areas of common ground and agreement. I deeply value the relationships that I have with all the finance ministers within the Eurogroup, and I spend a lot of time in contact with them on the phone and taking part in video conferences. Many of them have challenging circumstances in their own economies at the moment, and I find you are better able to make progress if you invest time in working as hard as you can to find what is best for everyone. This is the European method, and the way Europe moves forward. It may frequently be slow, but it means that the agreements you reach are durable and resilient because they are based on engagement and negotiation. It is an enormous privilege to hold this office while we are dealing with such a challenge, and I truly value the cooperation of all my colleagues with it and with me.

Q: What would you say about the new global corporate tax rules being developed by the Organisation for Economic Cooperation and Development (OECD)?

(PS): Speaking as Finance Minister for Ireland, we will of course have to engage with our American partners in relation to their taxation proposals. The world is changing regarding how large companies are taxed, particularly those that trade all over the world, and any change has consequences for Ireland. We hope that an agreement when it is reached is an agreement that will also recognize the role of small and medium-sized economies within it. That means we all must work intensively now on the OECD progress to see how we can reach agreement on these matters. This is an important process and a challenging one for many countries, but what will be valuable at the end of it is to come to a deal that brings stability to these issues. I look forward to engaging with America and with the OECD on the proposals that have been brought forward.

Q: Tell us a bit about The Path Ahead strategic plan, its targets, and where relations with the US will fit into it, considering the post-Brexit context?

(PS): The Path Ahead focuses on the plan to reopen our domestic economy. Somebody here in Ireland today has just received our 1 millionth vaccination, and we are hoping we can use this as the foundation to reopen our economy slowly and safely. On Monday, our children are going back to school. A week after that, we are hoping to open more of our construction sector. This plan is very much an inward-looking plan for our domestic economy and how we can open it up safely. In terms of the bigger picture, we have a big neighbor and a good friend in the United Kingdom that has now taken a very different path regarding its relationship with Europe. Ireland will continue to see our membership of the European Union as being intrinsic to our national identity and fundamental to our economic prospects.

Q: Final message to the readers of Foreign Policy magazine?

(PS): Even though our challenges are great now, we will overcome them. To overcome them, we must all work hard to make sure that we end up in a place that is better than the one we left behind before this pandemic hit us. We need to be aware of how many have suffered greatly during the pandemic, and of our obligations and responsibilities to them as we seek to review our economies.