Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

I am also grateful for the opportunity to be here to present the stability programme update and to speak to the expenditure dimensions of it. As members all know, this is an important point in the annual budgetary cycle. From an expenditure perspective, it allows us to take stock of the significant and continued investment in our day-to-day public services and our infrastructure. It also outlines, on a no-policy-change basis, the path for public expenditure over the medium term. It sets out a strong fiscal position as the Minister, Deputy McGrath, and I begin our preparations for the summer economic statement and then for budget 2025.

The Minister for Finance has outlined the continued strength of our economy, but we both acknowledge, notwithstanding this strong performance, that there are still many challenges to be addressed. The pressing need for more homes continues too, despite record delivery in that area, as does the desire for continued improvements in public services.

There are sustained external pressures on public services too, including from the ongoing war in Ukraine and our commitment to provide the necessary humanitarian support for people fleeing the war. The expenditure pathway set out in the stability programme update seeks to take account of such pressures by the inclusion of a contingency reserve over the period 2025 to 2027.

Due to the careful management of our economy and public finances over the past few years, from an expenditure perspective, the Government has been able to achieve the following four priorities. First is the provision of increased resources for core public services and for permanent increases in social supports, investing in quality of life and supporting living standards while, at the same time, meeting the challenges of the war in Ukraine and, of course, Covid. Second is the delivery of significant and essential infrastructure projects through our national development plan. Included within that, from this year to 2026, the Government has also utilised €2.25 billion in windfall receipts from corporate tax to assist in the delivery of the national development plan. Third, we put in place considerable temporary supports to provide assistance to our people and businesses in response to elevated inflation levels from 2022 right through to last winter. The final priority is to do all this while ensuring that our public finances stay in a sustainable position.

I have some further observations on each of those points. First, with regard to increased investment in our core public services for this year, overall spending will reach €97.1 billion. This includes core funding to support the delivery of a wide range of public services and enhanced infrastructure, including in health, education, housing and childcare, alongside supports to meet challenges driven by the pandemic and the war in Ukraine.

Second, the national development plan is the largest, greenest and most ambitious plan ever for Ireland.

In 2023, expenditure on the NDP was €12.5 billion, a significant increase over 2022, with almost a third of this funding going to the Department of housing. The result of this was that the overall number of houses delivered surpassed the Housing for All target, with 32,695 new homes completed last year. In 2024, capital investment will be over €13 billion, rising to €15.5 billion in 2026. To put this in perspective, capital investment stood at €4.6 billion in 2017.

On current expenditure trends, the fiscal monitor of last Friday shows that gross total expenditure to the end of April was up by 12.1% year on year, with capital spending up by over 53%. This reflects the investment set out in budget 2024, including enhanced social protection payments, increased staffing in key areas such as health and education to deliver front-line services and the additional social protection payment made in January this year.

Compared to the expenditure profile, overall spending is ahead by 1.5% or €436 million. Current expenditure is driving this, at €543 million or 2% ahead of profile, while capital is below profile by €107 million. The committee will be aware that the Government continues to face expenditure pressures in a number of areas that will require careful management during the year.

In 2023, we saw a general government balance of €8.3 billion, with a forecast of €8.6 billion for this year, rising to €10.7 billion in 2027. Against this backdrop, expenditure projections in the stability programme update are included in a technical, no policy change basis. The figures this year take account of the recent public service pay agreement and the voted expenditure amounts reflect the 5% growth rate anchor for core spending as set out under the medium term expenditure strategy in the 2021 summer economic statement. This is based on aligning voted expenditure with the trend growth rate of our economy.

In recent years, flexibility was required to take account of higher than anticipated inflation and this flexibility was reflected in our decision to increase the growth rate of public expenditure. Many of these challenges were external in nature. Since 2020, non-core expenditure, that is, expenditure that is temporary in nature, has facilitated our response to the impact of a range of external pressures. We started with Brexit and then had the pandemic and the outbreak of war in Ukraine, followed swiftly by soaring inflation. Separating out core and non-core expenditure has enabled funding to be provided for specific and temporary purposes capable of being withdrawn when no longer needed. With inflation retreating faster than expected and the pandemic hopefully in the past too, the careful phased withdrawal of these supports is under way. This is important to keep the public finances safe. In the case of Covid-related expenditure, total outlay has fallen from €15.4 billion in 2020 to an estimated €1.3 billion for this year. While a significant part of the non-core expenditure category has been unwound, risks remain. For this reason, we have included a contingency reserve within the overall expenditure ceiling for 2025 to 2027 of €4.5 billion. This will support the continuation of funding accommodation and social supports for, for example, arrivals from Ukraine.

The careful management of our public finances, while responding to many unforeseen external challenges, has helped our economy remain resilient. We now continue to help with today but also plan for the future. Over the coming months, the Minister for Finance, Deputy McGrath, and I will consider how we can best use the upcoming budget to support this work as we look to the summer economic statement.