Mr. Sebastian Barnes:

The forecast for debt has changed quite a bit. It has changed essentially because the economy has recovered much faster. High inflation tends to reduce that debt ratio. The other big thing that has changed is the budget balance which now looks much healthier than we thought before. That is what is putting it on this downward trajectory. Another thing that has changed which goes in the other direction is that we have seen interest rates go up a lot. At one point, Ireland was paying zero. It is now more like 1.5%. It is a big change at the margin.

In the short run, we are relatively well protected because Government debt has been issued at relatively long maturities and the Government is holding quite large cash balances. That was done for precautionary reasons but it is actually quite a good idea because it has locked in low interest rates. It has pre-funded that. The strategy has arguably paid off. Eventually, however, we will have to roll that debt over and we will go from the situation we will have in the next couple of years where interest costs will fall, because the debt we are issuing is still likely to be at lower interest rates than the debt it is replacing. That dynamic will go into reverse in the medium term. The debt outlook has changed quite a lot. The change has been partly favourable and partly less favourable.

In terms of the trajectory, the concern is that debt is still at a relatively high level compared to many countries and compared to what it has been historically. We have just discussed all the pressures on the cost of living and the risks. If those risks were to materialise and there was to be a big global recession in which Ireland was be hit badly, we would be in a different situation. However, in an SPU scenario where we come to growth and inflation comes back under control, the years ahead will actually be quite favourable. Unemployment will be quite low, the economy will be growing quite fast in real terms and interest rates will still be very low. I will borrow the phrase about fixing the roof while the sun is still shining. Those will actually be quite good years. They are not amazing years but they will be relatively good. Reducing public debt is a very difficult exercise. One wants to do it in relatively favourable circumstances such as that. One does not want to be doing it in a position where the economy is growing much more slowly which, in the long run, may well be what happens in Ireland or where one has major economic problems. It is very much about taking the opportunities.

The policy mistake of most advanced countries over past decades has been not to take the opportunities. When a country comes out of a recession or a slowdown, there are always problems to deal with. The country says it will do it, but not now. The country understands it needs to do it, but it will not do it now. One sees that the debt goes up during every crisis. It stabilises after the crisis for a bit and then we have another crisis. One is basically going up an escalator. This is really happening because of the failure to take slightly courageous decisions in relatively good times in the economy to get debt down. If we want to avoid being caught in this trap or being in a situation that is worse where one has to reduce debt against a difficult background, this is why we should make this plan.

Of course, if the economy were to go sour, we would need to look at it differently but that is basically the reason that remains a priority despite all of the other challenges. That is why we think sticking to the 5% rule would be helpful in that context. Of course, that imposes choices, but it imposes exactly the choices one should be making. If we want better public services or if we want to fund climate change, how will we pay for it? We should not think we will borrow. There may be cases in which it may be reasonable to do so, but we should not just do that because we are reluctant to face up to the fact that we should just be paying more or finding some savings elsewhere.