Public Policy Bulletin, 12 October 2020

Oct 12, 2020


In Public Policy news, Ireland’s new Climate Action Bill has been published. Its main target is to reach ‘carbon neutrality’ by 2050. Figures published in September reveal the continuing Exchequer deficit, and unemployment is likely to remain in double-figures into 2021. In Northern Ireland economic output fell by 14 percent over the quarter to June 2020. 

Irish Government Publishes Climate Action Bill

The Irish Government published the draft text of its landmark Climate Action Bill (the Climate Action and Low Carbon Development (Amendment) Bill 2020) with the main target being to reach carbon neutrality by 2050.

It appears that the new law will affect every element of society, with legally binding five-yearly carbon dioxide limits on the State, and all major sectors being subject to a cap on carbon pollution.

The main features of the Bill are as follows:

  • enshrining in law the target that the economy will be ‘climate-neutral’ by 2050. A climate-neutral economy is described in the Bill as a sustainable economy, where greenhouse gas emissions are balanced or exceeded by the removal of greenhouse gases. This will be known as the ‘national 2050 climate objective’;
  • the Government of the day will put in place five-yearly ‘carbon budgets’, covering 2021–2025, 2026–2030, and 2031–2035. Carbon budgets will determine the total amount of greenhouse gas emissions by the State permitted during the budget period. The carbon budgets will be calculated on an economy-wide basis, and there will be legally binding emission limits on major sectors, including the public service and local authorities;
  • the  Climate Change Advisory Council will have a strengthened role, and it will advise the Government on national and sectoral limits to be adopted;
  • greater accountability will be introduced for relevant ministers, who will be obliged to account annually before an Oireachtas committee for their sectors’ performance towards sectoral targets and actions;
  • a target of an average 7 percent per annum reduction in overall emissions by 2030, as committed to in the Programme for Government;
  • the replacing of the National Climate Change Mitigation Plan with a new annually updated Climate Action Plan, starting in 2021, and the development of a National Long-Term Climate Action Strategy.
  • the requirement on all local authorities to produce their own Climate Action Plans detailing their commitments to act to mitigate climate change and to adapt to its effects. These Local Authority Climate Action Plans must be completed within 18 months of the enactment of the Bill, and not less than once in every five-year period going forward. 

Speaking at the publication of the Bill, Minister for the Environment, Climate and Communications, Eamon Ryan described the Bill as a “radical departure for Ireland and one that puts our country on a new course”, and stated that that it will create opportunities for Ireland to be a leader in renewable power, repair and retrofitting, sustainable agriculture and the circular economy.

Taoiseach Micheál Martin described the legislation as “truly ground-breaking” and would have “a transformative impact on our society and economy into the future.”

Tánaiste Leo Varadkar TD added that the decarbonisation of the economy will present “significant opportunities for Irish business”. He went on to say “Whether that be in the huge expansion of entire industries, such as retrofitting or offshore wind, or in the creation of innovative solutions to the adaptations that will need to be made, the early movers with the most ambition will see the greatest opportunities. Thousands of jobs will be created and we will need to ensure we have a strong pipeline of skills to respond.”

The announcement comes as the European Parliament adopts its position on the EU climate law, making Europe’s 2050 goal of reducing greenhouse gases to net-zero legally binding, and voting for an ambitious target to reduce emissions by 60 percent compared to their 1990 levels, by as early as 2030.

It also comes after several weeks of increased activity among investor groups, framework- and standard-setting bodies, and the Big 4 accounting firms and World Economic Forum, all of which are moving towards agreed consistency on the reporting of climate-related and other non-financial information.

Economic impact of COVID-19 in Exchequer deficit

Exchequer figures published at the end of September shows that the trend of recent months is continuing, with a decline in VAT offset (to some extent) by strong corporation tax receipts and (to a lesser extent) by resilience in income tax receipts. Factoring in increased expenditure, the Exchequer figures show a deficit of €9.4 billion to end September 2020. A surplus of €38 million was recorded in the same period last year.

Figures showed a decrease in cumulative tax receipts from 2019 - down only 3 percent or €1.2 billion year-on-year. In light of the economic shock of Covid-19, it appears extraordinary that taxes are only 3 percent behind 2019 figures.  

VAT receipts in Q3 were down by nearly 19 percent or €900 million, reflecting reduced personal consumer spending, albeit propped up by government supports. Although income taxes were down 7.1 percent in Q3, overall year-to-date receipts continue to exceed expectations, as did corporation tax receipts which were 9 percent ahead of the same time last year.  

Government spending to support the economy was up 25 percent compared to 2019, with total net voted expenditure to end-September over €48 billion. The figures, according to Minister for Finance, Paschal Donohoe TD, show that the Government has directed an unprecedented amount of resources at fighting the COVID-19 pandemic, through investment in the health service, protecting incomes and supporting business throughout this crisis.

Commenting on the figures, the Minister said that Budget 2021 will see continuing use of appropriate policies to direct resources at those who need it most. ‘Today’s Exchequer figures provide a timely snapshot of the public finances as we prepare for Budget 2021. They show that although receipts are better than previously expected, much of the over-performance relates to corporation taxes — a revenue stream we cannot rely on over the medium-term’. 

Central Bank warns of that unemployment likely to remain in double-figures into 2021  

In its latest quarterly bulletin, the Central Bank has warned that the outlook remains uncertain for the Irish economy, citing both the COVID-19 pandemic and the future trading arrangements between the EU and the UK as the cause. Its latest bulletin assumes a no-deal Brexit, meaning that the EU and UK moving to WTO trading terms next year. Although Ireland’s economy fared better than most European countries – it recorded the smallest pandemic-related fall in GDP across Europe – it did experience one of the highest falls in consumer spending. Ireland’s exporting sector, particularly in pharma products remained strong enough to mitigate the overall fall in GDP, but the domestic sector fared badly due to the job losses caused by COVID-19 restrictions. The bank warned that unemployment would likely remain in double digits into next year. However, it did revise down its forecasted overall decline in GDP. Earlier this year it forecast a decline of 9% for 2020. It now forecasts a decline of only 0.4% for the year. It also projected the following:

 2021 2022
GPD growth  3.5%  4.7%
Unemployment increase 8% 7.5%

Fall in economic output in Northern Ireland

Figures published by the Northern Ireland Statistics & Research Agency (NISRA) have revealed that economic output for Northern Ireland fell by almost 14 percent over the quarter to June 2020.

The services, production and construction sectors were particularly affected. Citing statistics measured using the Northern Ireland Composite Economic Index (NICEI), NISRA revealed that economic output fell by almost 18 percent when compared with the same quarter in 2019. While this was the biggest fall in the history of the NICEI index, NISRA did point out that the decline in Northern Ireland economic activity was slower than in the rest of the UK over the second quarter and the year (UK GDP fell about 19 percent over the same quarter and 21 percent over the year.) 

However, it pointed out that on a longer timeframe, Northern Ireland economic output decreased by 5.1 percent over the last two years compared to growth of 5.4 percent reported for the UK. 

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