Professor Stephen Kinsella:

Sometimes it is helpful to be teaching international macroeconomics on a day like today. The students are doing a debt dynamics analysis for their introductory macroeconomics class right now. If any of them are watching this, they will get the answer to the test, which I suppose is some kind of reward for diligence. The National Treasury Management Agency, NTMA, has been extremely sensible in previous years when interest rates were very low by refinancing the austerity level borrowing at lower and lower rates. As a percentage of our total revenue every year, it is actually much lower. It is like a household's disposable income and its mortgage. The interest rate of the mortgage does not necessarily matter. What matters is how much you have to pay in your mortgage every single month relative to disposable income. Ireland's disposable income is really high and the amount that we have to pay is relatively low. As that will be true for the next five or six years, we have a lot of runway as interest rates creep up. The problem is at the end of that five, six or even seven years, when we have to refinance that debt, as if interest rates are much higher then we will hit a fiscal cliff or it will be much more expensive to borrow to refinance the debt that we have already refinanced just to kick the can further down the road. That is on one side. We have a nice runway; we should be fine.

On the other side, there is a difference between the rate of inflation or the amount that you are spending on your debt and the growth rate of the economy. There is a very long-standing relationship which is what the students are actually estimating tonight for their assignments. It shows the amount of interest that you are spending compensated for inflation, I, minus the rate of growth, G. If that is positive, you are in trouble but if it is negative, you are grand. That I minus G relationship has been very favourable for us over recent times. We have been growing really strongly since 2014 even through the Covid era, when the Irish economy performed really strongly. On our debt sustainability, I would not have too many concerns today. Even next year, with all the headwinds in the economy it will probably balance out somewhere between 0% and 1%. I would not be that worried about it. It is five or six years from now that you would start to get worried but we have time to get the house in order. As Dr. Doorley says, we have to start having this conversation about how we pay for this bigger state. The pillars of our state are high-income taxpayers. People in the top 20% of the income distribution pay a disproportionate amount of all taxes relative to the Nordic countries, say, where as you go down the income deciles, those deciles pay a lot more as a proportion of their income. You also find much greater wealth and property taxes etc. It pays for a larger state, which has far fewer debt sustainability concerns. It returns to the question that Deputy Boyd Barrett asked. What is the chicken and egg in this regard? If you invest in productive capability in order that the manufacturing sector in one area such as wind of something else comes up, then that remits tax revenues that can be used to pay for other things. That is the beauty of structural economic change. It creates new things, which remits new revenues, which allows the state to grow and allows services to develop. It is how you get out of the catch-22; in a certain sense, growth is the solution.

To return, to the original question of whether the debt sustainability is a problem, it is not something that I would be worried about.