Oireachtas Joint and Select Committees

Thursday, 15 July 2021

Committee on Budgetary Oversight

Summer Economic Statement: Minister for Finance and Minister for Public Expenditure and Reform

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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I will be as brief as I can. I welcome this opportunity to appear before the committee to speak on the summer economic statement, which was published yesterday, with my colleague, the Minister for Finance.

The summer economic statement is a key element of the reformed budgetary process and sets out the parameters for the forthcoming budget and our medium term budgetary strategy to 2025. The expenditure strategy outlined in the statement reflects the Government’s commitment to return the public finances to a more sustainable position while addressing our infrastructure challenges, including the key areas of housing and climate action, continuing to enhance our public services and social supports and ensuring a balanced recovery from the pandemic.

In line with the approach in budget 2021 and in the stability programme update, expenditure to fund temporary measures to address the impact of the pandemic is dealt with separately from expenditure on the delivery of core programmes and infrastructure. This distinction between core and temporary funding is essential to ensure the medium term sustainability of the public finances.

The strategy on core expenditure is to grow overall expenditure each year by 5%, on average, over the period to 2025. The average annual growth rate in core current expenditure is just under 4.75%, with total capital spending, including that funded under the national recovery and resilience plan, NRRP, growing by an annual average of over 8.5%, and reaching more than €13.5 billion in 2025. These increases in capital investment in the period to 2025 follow the significant increases in 2020 and 2021 and would see total capital spending as a percentage of national income, as measured by GNI*, increase from 3.4% in 2019 to 5% in 2025. Over the five year period 2021 to 2025, on a cumulative basis total gross voted capital expenditure, core and NRRP, would amount to over €59 billion compared to core capital spending of €29 billion over the period 2016 to 2020.

A key element of the medium-term expenditure strategy will be setting out revised capital expenditure ceilings for the period to 2030 following completion of the review of the national development plan, NDP. Engagement with Departments on the review of the NDP is ongoing and the capital expenditure amounts in the summer economic statement provide the overall parameters for the NDP for the years to 2025. Core current spending as a percentage of national income will also grow, from 28.1% of GNI* in 2019 to 29.9% in 2025. The average annual growth rate of just under 4.75% over the period 2022 to 2025 provides the resources to meet existing levels of service costs and for new measures to enhance public services and social supports.

The level of resources being set aside for core spending is significant, almost €93 billion in 2025 compared with just over €70 billion in 2020. This level of resourcing requires an ongoing and enhanced focus on value for money and that we ensure that there is the capacity to deliver this significant investment. We must build on the budgetary reforms already in place to drive spending efficiency and effectiveness.

As we look to ensure that the recovery from Covid-19 is fair and balanced, it will be important to utilise these reforms to provide the evidence to inform decision-making. The development of the well-being framework for Ireland can support this approach, in terms of developing a shared understanding of what makes for better lives and influencing public debate on strategic priorities. The careful phased withdrawal of Covid-19 supports is essential to support society and the economy to recover from the impact of Covid and to return our public finances to a sustainable position.

Across 2020 and 2021, we will have made available over €31 billion for direct expenditure measures with approximately €15 billion this year. The stability programme update included €4 billion in Covid-19 related expenditure in 2022. Including the expenditure funded under the NRRP, the summer economic statement now sets out almost €7 billion for temporary Covid spending next year including an amount to be held in reserve to allow the Government respond as the situation with the virus evolves. This is a prudent approach given the uncertainty that still exists regarding Covid and the requirement to ensure that supports are carefully withdrawn in a manner that supports the recovery of our economy.

The summer economic statement includes an amount of expenditure of €1.1 billion for measures funded by the Brexit adjustment reserve, BAR. Funding under the BAR will be used to support employment, businesses and local communities negatively affected by Brexit, including those in the fishing industry, and will be allocated across budgets 2022 and 2023

The fiscal strategy underpinning the summer economic statement marries the commitment of the Government to deliver improvements in infrastructure and public services with the commitment to sustainable public finances.

The strong position of the public finances before the Covid crisis put us in a position to deliver a significant fiscal response to support our people, businesses and key public services through the crisis. As the impact of the crisis recedes, we must start returning the public finances to a more sustainable position.