Get wise before the event

May 05, 2020

Originally published on Business Post, 26 April 2020

One of the most inane comments I heard about Brexit was from a management guru who said that the Brexit crisis only forced businesses to plan in ways that they should have been doing already.  As being wise after the event goes, this takes some beating.  It's like remarking that falling off a pier should prompt you to consider taking swimming lessons.

Yet if Brexit caught some of us unawares, everyone was blind-sided to the prospect of a Covid-19 pandemic.  Even the Minister for Finance could admit this week that a pandemic was not on the critical planning path of his department, while observing that it probably was not on the planning radar of any other finance minister in the world either.  Every business is now though being prompted to reconsider what they do and how they do it.

Ironically one of the most compelling prompts is coming from the Revenue Commissioners. 

The Wage Subsidy Scheme run by the Revenue is very successful.  Some 300,000 workers are taking home more than they might otherwise take from over 45,000 employers as a result of the scheme.  The scheme received a further boost with last week’s announcement of enhanced subsidies for lower paid workers.  In addition, workers whose pre crisis earnings exceeded €76,000 per annum but who have since suffered pay cuts to bring their earnings below that cut-off threshold may now also be eligible for wage subsidies.

While the focus has rightly been on the plight of workers, wage subsidies are of course paid to businesses which in turn pass them on to their employees.  Unlike its UK counterpart (also of course applicable in Northern Ireland) where eligibility is predicated on people being laid off temporarily on “furlough”, eligibility for the Irish temporary wage subsidies is based on a decline in business. 

At its simplest and crudest measure, wage subsidy scheme eligibility depends on a fall-off in sales or orders of 25% or more in quarter two of 2020.  That is as against a comparable period, typically quarter two of 2019.  For many of us, that level of fall-off is all too evident.  Nonetheless, not all businesses, though they may be severely challenged by the lockdown, can convincingly estimate a 25% drop-off for quarter two.  That could be because some strands of their operations are continuing to thrive despite the lockdown.

Consider for example a wholesale and retail trade.  Retail may have dried up completely because there is no footfall, but the wholesale side of the business continues perhaps with even increased demand for some product lines.  Similarly a training organisation may find that while demand for an attendance at classroom-based sessions has evaporated, its online training offerings are experiencing a surge.

The newest version of Revenue guidance addresses the position for such industries, permitting them to identify individual commercial streams within their organisation which are experiencing a 25% drop-off in business.  Employees associated with those elements of the business should be eligible for wage subsidies.

When claiming the temporary wage subsidy in accordance with this newer version of guidance, businesses must be able to show that the divisions which are in trouble within the organisation are long established, and in particular had been well established before the pandemic.  Makey-uppy commercial divisions within companies constructed for no reason but to apply for wage subsidies will wither under future Revenue scrutiny.

Even if some shop doors are open post 5 May, training venues eventually open their doors, and passenger number restrictions are eased at some point in the future, will there be bodies to buy or to learn or to travel as in the halcyon days of 2019?  That may take a lot longer.  A self-imposed lockdown will remain, not least because the shaking of both personal and industry finances over the past several weeks will have instilled caution.  A newfound and exaggerated prudence will prevail for months to come even after the restrictions are lifted.  The Minister for Finance signalled during the week that the wage subsidy payments could continue in a changed or tapered form beyond their twelve week span which is due to end in June.  This will be necessary and we all now need to look beyond that point. 

Those businesses along with the individual divisions within companies and organisations which are currently not eligible for wage subsidies will form the backbone of the recovery.  However, if we do not ensure that support is maintained for the industries most damaged by the Coronavirus crisis, national recovery will be patchy at best.  The level of unemployment, forecast this week by the Department of Finance to reach 220,000 by year end, will remain stubbornly high. 

Job retention and restoration – remember that the subsidies can also be claimed for workers who are re-hired - are critical to achieving a rapid recovery.  The Wage Subsidy Scheme is fundamental to ensuring this can be achieved.  It is surely better for the country to subsidise workers’ wages as markets return to normal than to pay dole.  Unlike the last financial crash and unlike Brexit, we can be wise before the event as we resolve the crisis.

Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland