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Big challenge in economic stimulus plans is to avoid wastefulness

The Government’s economic stimulus plan, which will be published today if it is signed off by the Cabinet, is a tricky exercise at a time when there is nervousness about rising numbers of Covid-19 cases. It is difficult to reboot the economy if the public remains concerned about a second wave, and no one is quite sure what that would mean for businesses, many of whom have only recently reopened.

The plan will try to give businesses as much certainty as possible in terms of government supports, outlining the future of the wage subsidy scheme in particular and widening and increasing the cash grant for SMEs that are restarting. A key challenge here, given the scale of the demands, is to avoid where possible subsidising things that would have happened anyway.

To an extent, this is inevitable. Schemes such as the wage subsidy were emergency instruments introduced to save jobs in a hurry. The challenge now is to reshape State supports to focus more forensically on where they are needed – particularly supporting jobs that would otherwise be lost and widening the focus to help companies take employees off the live register or the pandemic unemployment payment.

Here the long-standing JobPlus and short-time working schemes – designed to encourage firms to take on unemployed people and keep people working short-time when the employer cannot afford full-time work – may get a reboot. Or the wage subsidy may be amended to do the same thing.

The challenge is to make these schemes as easy to access as possible, while ensuring that they direct help where it is needed. The same applies to the credit guarantee scheme, likely to involve the extension of loans at rates of less than 4 per cent.

What of the promised sectoral supports? The mooted scheme to give people VAT back on staycations does risk giving them a subsidy for spending that most of them would have undertaken anyway, even if it does avoid the August high season. It will be politically popular, no doubt, but is it the most efficient way to support the tourism sector?

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