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

I thank the committee for affording the Minister, Deputy Donohoe, and me the opportunity to meet it as part of its pre-budget scrutiny process. Since we last appeared before the committee in July, there have been a number of developments that impact on our budgetary considerations.

As inflation continues to rise in the short term, my Government colleagues and I are cognisant of the financial impact and strain that this places on people, businesses and wider society. Consequently, we have deployed a number of measures over the past year to reduce the inflationary burden on households. Budget 2022 set out a €1.2 billion package of expenditure measures across a range of sectors to assist with the cost of living pressures. These measures included increases in weekly social protection payments, the fuel allowance and the working family payment, social and affordable housing funding, health affordability measures, and enhanced student and childcare supports. Since December 2021, more than €500 million of additional expenditure measures have been put in place to support citizens facing increased costs. These included the electricity credit of €200 for all domestic account holders, a 20% average fare reduction for public transport services until the end of this year and additional fuel allowance payments, just to name a few examples.

The Government is committed to continue doing its part to assist households and businesses in the face of a rising cost of living. This is the key objective framing budget discussions. The urgency of this task underpinned the Government's decision to bring forward budget day to 27 September. We will seek to ease the burden for lower and middle-income families in particular who are facing difficult choices. As ever, we will balance the need to provide supports while ensuring that we do not add to inflationary pressures. Discussions are now under way as part of the Estimates process to introduce targeted, impactful measures capable of timely implementation, including in quarter 4 of this year. A comprehensive package will be announced on 27 September.

A vital piece of the jigsaw for budget 2023 is public sector pay, which accounts for one third of total current expenditure. I am pleased that proposals have now been agreed to extend the current public service pay agreement, Building Momentum, to the end of 2023. Of course, it is subject to ratification, which we do not take for granted. Subject to that approval, the proposals will see a 3% increase in pay for public sector workers backdated to 2 February 2022, a 2% increase from 1 March 2023 and a further 1.5%, or a minimum increase of €750, from 1 October 2023. This is in addition to the 1% increase provided on 1 February of this year and the further 1%, or €500, due on 1 October 2022 that were agreed under the original Building Momentum agreement. In total, the adjustments provided for in 2022 amount to 5% for the majority of public servants.

I believe that the proposed pay increases strike the right balance between providing a deal that is fair to public servants in the midst of cost-of-living challenges and one that is sustainable and affordable for the taxpayer. It is important to invest in our public service workforce to attract and retain the staff we need to deliver quality front-line services for a growing population. If the proposed agreement is ratified, it will enable the Government to move quickly to alleviate some of the impact of inflation on our public service workers as well as secure industrial peace. Under the proposed agreement, the benefits for those on lower levels of pay will again be higher than the headline percentage increases.

I will reiterate the Government’s budget 2023 strategy, as discussed at this committee in July. The budget will see an expenditure ceiling of €90.3 billion and core spending next year will reach €85.8 billion. This significant overall level of resources will enable continued investment in the quality of life in Ireland and support a strong, fair and equal society into the future. As set out in the summer economic statement, this will provide for an expenditure budgetary package of €5.7 billion over 2022 and 2023. This is an increase of €1.7 billion relative to what was originally provided for in the medium-term expenditure strategy. This temporary adjustment balances the need to protect core public services while ensuring that budgetary policy does not become part of the inflation problem. It is important to ensure that our approach is responsive to the challenging economic environment that many face but also fiscally sustainable.

Approximately 3% of the core current expenditure base will be available to meet existing levels of service. This includes continued investment in the public sector workforce, as set out in existing Building Momentum pay deal, as the delivery mechanism for a wide range of critical services; funding for demographic developments, including supporting a growing population and the changing profile of our citizens; and the full-year impact of measures from budget 2022, which are being implemented on a phased basis.

Capital expenditure will increase by a further €800 million next year. Overall core capital investment will reach some €11.7 billion in 2023, with an additional €200 million as part of the national recovery and resilience plan. This represents an increase of 7%, which in line with the National Development Plan 2021-2030. This funding will provide for vital investment across sectors such as health, education and transport while also delivering progress towards our ambitious climate goals. The remaining amount - some €2.7 billion - will be available for new current expenditure measures across 2022 and 2023. The recently proposed extension to the Building Momentum public sector pay deal will account for approximately €1.4 billion of this amount, comprising pay and associated pension costs.

Other new measures, such as social protection supports and other Government commitments in respect of housing, education, health and so on, will be announced on budget day. As always, this will require appropriate prioritisation of the numerous demands across a range of sectors.

The Government is providing €4.5 billion in non-core expenditure for temporary measures. This approach facilitates responsive fiscal policy, which can provide supports to key emerging issues while protecting day-to-day expenditure and investment. This expenditure will provide humanitarian supports for displaced persons arriving from Ukraine, more limited Covid-19 provision in respect of the continued response to the effects of the pandemic, and enable us to respond to Brexit.

Each year on budget day, attention is primarily focused on new current expenditure measures and increases in funding that are necessary to maintain existing levels of service. While these changes in expenditure are important, the vast majority of public expenditure supports the provision of ongoing current expenditure and capital investment.

It is important to keep sight of the totality of public spending and ensure that the overall level of expenditure remains affordable over the longer term and delivers sustainable improvements in public services and infrastructure. The Mid-Year Expenditure Report 2022, published by my Department in July, provides further detail on the different processes for effective measurement of outcomes. These processes, including the well-being framework, green, equality and gender budgeting, and the spending review processes are examples of how we can improve the evidence base to support ongoing improvements in public services.

In less than two weeks' time I will bring forward a spending package, and the Minister, Deputy Donohoe will bring forward a taxation package, that seek to address the inflationary challenges we are now facing while also providing for investment in our economy, our public services and our critical public infrastructure. The budget will balance the need to provide supports to the most vulnerable now with investing in the future of our economy and our society. While fiscal policy must be responsive, we must maintain a focus on long-term priorities, investing in quality of life in Ireland through our public services.