As the Deputy noted, total deposits held by households in Irish banks rose to approximately €120 billion in July, marking a continuation of the upward trend in savings seen since the outbreak of the pandemic.
This surge in household savings is both voluntary and involuntary. While many households suffered a fall in income in the second quarter of the year, Government schemes such as the Temporary Wage Subsidy Scheme and the Pandemic Unemployment Payment offset some of this shock. However, the reduction in spending was much larger than the fall in household disposable income. On one hand the sale of goods and services was restricted due to containment measures. On the other hand, households responded to the uncertain economic environment by building up precautionary savings. While some easing of savings may be expected next year, savings will likely remain elevated relative to historic levels in the face of continued uncertainty surrounding the path of the virus.
The Government has acted decisively to counteract the worst effects of the COVID-19 induced economic shock by providing supports with a total value of around €24.5 billion to date, mostly in the form of labour supports, investment in the health service and through direct supports to businesses. The July Stimulus package, when combined with previously announced measures, represents unprecedented levels of Government intervention in the economy. It is centred on the twin objectives of assisting business and getting as many people back to work as quickly as possible. The measures announced in the July Stimulus Package include a ‘stay and spend’ initiative to support the hospitality sector, loss relief measures for self-employed individuals and other businesses, and a temporary reduction in the standard rate of VAT from 23 per cent to 21 per cent. All of these measures will be beneficial to the retail and hospitality sectors, which have suffered greatly during the crisis.
Due to prudent management of the public finances in recent years, we entered this crisis from a position of strength and resilience and we are now able to run budget deficits in order to provide counter cyclical support to the economy and to promote the retention and creation of jobs. While I cannot announce the contents of Budget 2021 in advance, the Budget will provide support for those sectors most in need in the short-term. As set out in the Programme for Government, a ‘Recovery Fund’ will be established as a further support and Minster McGrath and I will provide more details of this on Budget day.