Stay and spend - a very Irish ‘stimulus’ scheme

Personal finance columnist, Jill Kerby takes us through the new 'Stay and Spend' scheme...

One of the first pieces of legislation to be passed by the Dáil after its short recess was the ‘Stay and Spend’ scheme, which comes into effect next month and aims “to help drive sales in the hospitality sector during the off-season” according to the government.

The scheme allows taxpayers who register and download a dedicated Revenue app to claim up to €125 in tax relief on accommodation and food purchases worth up to a maximum €625 from participating VAT registered hospitality providers. If someone doesn’t have sufficient income to benefit from the 20% tax relief on the €625, they can still claim up to €125 against any Universal Social Charge contribution they pay.

Meanwhile, just back from their summer recess, the US Congress is reported to be considering yet another direct pandemic cash stimulus package for Americans.

Late last March, as part of the CARES Act emergency response to the pandemic, $290 billion in cash was sent to Americans with incomes up to $75,000 dollars. Adults received a $1,200 payment ($2,400 for earning couples) and $500 for every dependent child. (Lower pro-rata payments were sent to higher earners on up to $99,000 income, above which no payments were sent.)

By mid-April most people with IRS registered bank accounts had received their payment, and everyone else was sent cheques in the post. A Gallup poll held on April 14 found that 35% of people used their stimulus money primarily to pay bills. Another 16% said they used it to buy essentials like food or gas, and 29% planned to save or invest it.

Speaking to MoneyWatch a few months later, economists at Columbia University, Northwestern University, the University of Chicago and the University of Southern Denmark confirmed that, unlike the spending outcome from the stimulus payments that were made to Americans after the 2008 financial collapse, “Given the size of the 2020 stimulus checks, we might have expected large impacts on categories like automobile spending, electronics, appliances, and home furnishings. Instead, it seems that individuals are catching up with rent and bill payments as well as engaging in spending on food, personal care, and nondurables.”

These kind of big stimulus packages don’t happen here because we no longer have our own money printing press. We instead depend on loans from the ECB and sovereign debt markets to live beyond our means or pay for emergencies like the collapse of our banks or the Pandemic Unemployment Payments that paid tens of thousands of workers higher weekly payments (the flat €350) than they were earned before they lost their jobs.

Our ‘Stay and Spend’ staycation tax relief scheme, which runs from October 1 to December 31, is positively puny compared to the American cash grants that typically saw a family of four (two parents and children) €3,400 better off. Some Irish hospitality industry voices, while welcoming any help, have described Stay and Spend as 'too little, too late' and too complicated to make much of an impact. They certainly would have preferred a direct voucher scheme like the UK government’s ‘Eat Out to Help’ last August that was worth 50% off to the diner and meant a direct payment to them.

The €125 maximum tax relief (money earned and collected by the Revenue but now returned to its original owner) was never conceived as a handout to the hospitality industry but as a nudge for us to spend in this hardest hit sector of the economy.

The idea was also that it might bring some much needed ‘velocity’ into the spending cycle here and that staycationers would also spend some extra money in local shops, pubs or activity centres. And when we all got home after downloading our receipts onto the Revenue app and got the tax refund, that we’d then spend it on our own high streets.

The problem with stimulus packages, and this ‘velocity of spending’ theory, is that they don’t always work.

The Americans have put $290 billion directly into taxpayers' bank accounts so far but the US high street remains moribund. People spent their windfall mostly on stuff they needed - food, rent, petrol, debt repayments and to boost their savings.

We can’t just print vast amounts money from thin air like the Americans and British for cash giveaways because we handed that pleasure to the ECB many years ago. It and sovereign debt markets lend us money we don’t earn. because we have to borrow money we don’t have from the likes of the ECB or sovereign debt markets.

And maybe that’s a good thing. Printing money from thin air always pushes up the price of goods – it is the true definition of inflation. High street price inflation hasn’t happened yet, or even since 2008, because the piddling amounts that handed to ordinary folk – as opposed to Wall Street and the super rich – hasn’t all ended up on the high street. (There has been massive price inflation in stocks and shares, property, art.)

By the end of this year it has been estimated that Irish households may end up saving an additional €10 billion. It will probably take the end of the pandemic to get this money back in the economy, but it’s the kind of genuine ‘stimulus’ that we actually need.