Oireachtas Joint and Select Committees

Wednesday, 8 December 2021

Committee on Budgetary Oversight

Fiscal Assessment Report: Irish Fiscal Advisory Council

Dr. Eddie Casey:

I guess the Deputy is directing the question to me. I will not consult with Wilson, the ball in here with me. I am in the south of Ireland. I was recently asked if I was at the South Pole. On that point, much of the coverage was taken out of context, which the Deputy will not be surprised to hear me say. They are probably not that far apart if a full discussion was had. The ESRI did some analysis. It said that if Ireland's debt ratio is looked at relative to GDP, it seemed lower than other countries, and because interest rates have fallen, which most economists would view as a long-term thing, there is probably more space over the coming decades to invest in things like housing. In its responses, the Department of Finance suggested that this was somewhat unhelpful and pushed towards much higher deficits after a period of heavy deficits due to Covid. The debt ratio was actually quite high when measured against national income and ignoring distortions of GDP.

Our own view is that Ireland still has a fairly high debt ratio. We think the right way to measure these things is national income, which is GNI*. That is the best measure we have of tax revenue, of what the underlying economy is doing and what is really driving the public finances. It is not GDP. When we look at it and think that the debt ratio is high, we think that some scope is given by lower interest rates to run slightly higher deficits over the medium term, but it is not enormous. When one is starting from a high debt ratio already and is a small, open economy, it makes things harder. We think that the Government should be targeting a reduction in the debt ratio over time. We have to be cautious about how much spending we are talking about and how large a potential deficit we want to run to fund things like additional public investment in housing. We said that the Government's current plans are appropriate in the medium term. The discussion should start from such a baseline. We would assess any change to those forecasts.