Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

I welcome the opportunity to appear before the committee today as part of its pre-budget 2022 scrutiny process.

Detailed work is ongoing in my Department to finalise the expenditure Estimates for budget 2022. Similar to the approach adopted last year, the upcoming budget will be framed in the context of continued sustainable increases in core public expenditure, with a focus on significant increases in capital investment and the provision of exceptional additional funding for temporary supports to address the impact of Covid-19 and Brexit. Since the onset of the pandemic, the Government has provided significant supports with direct expenditure measures to support incomes and employment and to fund key public services. When the measures announced in the economic recovery plan are taken into account, it is expected that €15 billion in direct expenditure supports will be provided in 2021, bringing to some €31 billion the amount made available across 2020 and 2021. This level of support, which has been essential in ensuring public services can respond to the challenges of the pandemic and in supporting people's incomes and businesses, has understandably had a major impact on the public finances. Despite this, I believe it was the right approach from the Government. However, we have been able to manage this shock due to the relatively strong position of the public finances before the pandemic and the co-ordinated approach at EU level in responding to the crisis.

As the public health situation improves and the economy reopens, we must start on the road to returning the public finances to a more sustainable position and the debt-income ratio must be put on a downward trajectory. Withdrawing the temporary supports put in place, as they are no longer required, is essential to this. However, we have been clear that this will be achieved in a carefully phased manner so as not to disrupt the ongoing recovery.

The summer economic statement, SES, set out the medium-term strategy inclusive of spending levels to 2025, and budget 2022 is being prepared in line with this strategy. This will see core expenditure grow by an annual average of just over 5% over the period to 2025, a level of increase broadly in line with the economy's estimated trend growth rate. The average annual growth rate in current expenditure is projected to be just under 4.75% over this period, with total capital spending growing by an annual average of more than 8.5%. The increases in capital investment in the period to 2025 build on the increases in recent years. Indeed, over the coming period, we will continue to support the recovery in the economy, including through record levels of investment in the capital programme. This will see total capital spending as a percentage of national income, as measured by GNI*, increase to roughly 5% in 2025. This level of investment reflects the Government's commitment to deliver on our key infrastructural priorities. The revised national development plan, NDP, is currently being finalised and it will set out annual expenditure ceilings for the initial five years for each ministerial Vote group, in line with the parameters set out in the SES.

The planned increases in core spending over the period to 2025 will see overall core spending grow from just over €70 billion in 2020 to almost €93 billion in 2025. This significant level of expenditure on services and investment in infrastructure requires that there is a continued focus on ensuring this spending delivers value for money and improved outcomes and that we ensure there is the capacity to deliver this significant level of investment.

Turning to the upcoming budget, this is being prepared in line with the expenditure parameters set out in the SES. This will see total voted spending of up to €88.2 billion in 2022. Of this, €80.1 billion will be for core expenditure, while up to €8.1 billion will be available for non-core, temporary supports to address the specific challenges of Covid-19 and Brexit. In line with the strategy adopted in budget 2021, this core and non-core spending will be dealt with separately, with allocations for temporary measures clearly outlined in the expenditure report.

There is a significant increase of €4.2 billion in core spending for 2022, an increase of 5.5% over the 2021 core amount. Some €3.1 billion of this will fund increased current spending next year, bringing overall core current spending to €69.2 billion. Within this additional funding, €2.1 billion is estimated to be required to fund existing level of services, ELS, costs, including for demographics, the public service pay deal and the carry-over of current year measures. My Department is working through the detail to finalise the exact ELS requirement, taking into account the expenditure position at the end of September. The remaining balance, currently estimated at €1 billion, will be available to fund new spending priorities next year.

The review of the NDP was brought forward under the programme for Government and the phase 2 report on this is being finalised. It is our intention to publish the review of the NDP on Monday of next week. This will set out revised sectoral capital allocations as well as providing a renewed focus on delivery of efficient and cost-effective public infrastructure.

An increase of €1.1 billion over the 2021 core capital allocation will see core capital spending rise by almost 12%, bringing capital investment, including spending on the national recovery and resilience plan, to more than €11 billion next year. This follows significant increases in capital spending in recent years. By way of comparison, in 2018, the first year of the current NDP, Exchequer capital investment amounted to just under €6 billion. These sustained increases reflect the priority given to addressing key infrastructure requirements, including for climate action, housing, balanced regional development and healthcare.

On non-recurring temporary supports, this allocation is targeted at addressing the specific challenges of Covid-19, with up to €7 billion available to fund relevant measures, including under the national recovery and resilience plan, with some of this amount to be held back in a contingency reserve to allow the Government to respond to the situation with the virus next year.

This funding will allow for the phased withdrawal of supports, additional expenditure on income supports as the labour market continues to recover, and spending on necessary public health measures required for the delivery of public services in a Covid environment. Decisions on specific measures to be covered by this funding and allocations to Departments will be made as part of the Estimates process. As in 2021, it is intended that all expenditure allocations related to Covid-19 will be separately identified in the expenditure report to ensure transparency. In addition, €1.1 billion of non-core funding relates to Ireland’s funding allocation under the EU’s Brexit adjustment reserve, BAR, for measures to address the negative impacts of Brexit. This funding will be allocated across budget 2022 and budget 2023 to support employment, businesses and local communities negatively affected by Brexit, including those in the fishing industry.

Budget 2022 is being framed within a complex setting. In light of this, I will seek to put together an expenditure settlement for next year that will support an effective response as we seek to deliver on our key social, economic, and environmental priorities, while also responding to the challenge of Covid-19 and the ongoing challenge of Brexit. Accordingly, significant resources will be available next year to support our people and our key public services in recovering from the impacts of Covid-19. In addition, we will also seek to ensure we continue to deliver meaningful improvements in key priorities in our core expenditure programmes. Building on budget 2021, adopting this approach will enable us to continue to provide incremental improvements in the delivery of core public services across Government within a framework that supports medium-term fiscal sustainability.

I look forward to Members’ questions.