Paschal Donohoe (Dublin Central, Fine Gael)
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I thank the Chair. The Minister for Finance, Deputy McGrath, has covered off the general economic outlook, so I will go right to the section of my speech that focuses on our medium-term expenditure strategy.

As the committee will be aware, the two most recent two budgets utilised a dual approach of revising our medium-term expenditure strategy while utilising supplementary non-core funding for external challenges. This combination of temporary and permanent support measures was a conscious attempt to avoid adding to inflationary pressures and the Government will continue with this balanced approach to the public finances.

In line with best practice, as the overall economic picture stabilises, we are committed to a path back to the medium-term expenditure strategy growth rate of 5%. However, we are also acutely aware that price pressures remain in the short term, and on that basis, the strategy for budget 2024 will be to continue to help society to deal with the challenge of higher prices in our economy. In drafting our expenditure policy, therefore, we will once again strike a balance between the need to maintain services and improve living standards, while consciously trying to avoid adding to inflation. It is in the context of these short- and medium-term considerations of the economy that we have framed our strategy for the SES.

The objectives are twofold: to ensure that the level of core expenditure growth is sustainable and that investment in expenditure protects and delivers improvements in public services. The framework must be responsive to the economic landscape and is, therefore, part of the whole-of-year budget process. While the expenditure strategy was developed, it was designed against the backdrop of a long-term inflation rate trend of 2%. With a rate of 8.1% in 2022 and an expected rate of 4.9% for 2023, adjustments were made to the strategy in those years to respond to the economic landscape characterised by external shocks. The present strategy will take account of the nature and residual effects of exceptional globally-driven events. Another adjustment to the strategy is required to respond to the impact of higher prices and the maintenance of higher prices.

As we did last year, we are taking an approach that looks to maintain and improve public services while trying to avoid adding to inflation. Since late 2021 and early 2022, inflation has increased above the trend rate of 2%, and this has posed a risk to the value of public services and the purchasing power of households.

The Government is conscious that while price pressures remain high for now, the forecast rate is for a drop for 2024. The adjustment to the expenditure growth strategy takes account of the expectation that inflation rates will gradually return to the trend.

The summer economic statement sets out the key parameters for budget 2024. The parameters are comprised of three main components, each of which I will outline separately in more detail. These components are core expenditure, the day-to-day operation and services delivered across the public service and the investment in the capital assets that produce them which is the vast majority of annual public expenditure; non-core expenditure, that is the spending on non-routine and temporary exceptional items such as the response to the war in Ukraine, Covid and Brexit; and a new, temporary component of limited windfall receipt capital investment that will be invested in capital and long-term public priority projects like the climate action fund. This is separate but additional to the core and non-core elements that the committee has discussed in the past.

Compared to the position set out in budget 2023 the new parameters will see core spending increase by 6.1% for 2024. This delivers a total expenditure ceiling of €95.5 billion for 2024 as set out in the summer economic statement. This funding will support and improve core services to households and business; continue the extensive humanitarian response to refugees from the war; and continue to support an economy dealing with the legacy impacts of the Covid pandemic and Brexit. This adjustment will result in an increased overall expenditure package of approximately €5.2 billion. This is around €1 billion additional over that set out in the stability programme update. A further €1.1 billion is provided for tax measures and additional amount of €250 million from windfall receipts is being made available for additional capital investment. Therefore, the largest component of the expenditure element of the budget is core expenditure, that is our day-to-day current spending. For 2024, €91.2 billion of core expenditure will provide for both the ongoing support of and improvement in public services and additional public investment. This funding includes €2.3 billion, or approximately 3% of the core current expenditure base, to meet existing levels of service costs. This includes funding for demographic developments; funding carry-over costs from previous budget decisions; and meeting existing public service pay commitments such as the extension to Building Momentum. There will be a €0.9 billion increase in national development plan capital expenditure. This will result in the overall core capital investment reaching some €12.6 billion with an additional €0.2 billion as part of the national recovery and resilience plan, NRRP. This represents an increase of approximately 8%, in line with the national development plan out to 2030.

Some €2 billion will be available for new current expenditure measures next year. This must accommodate priorities across a wide range of policy areas including spending on social protection, which currently accounts for around a third of core current spending; and government commitments in relation to housing, climate change, childcare and health and any charges with regard to public pay. I will be working with my Government colleagues in the coming months to agree on the various measures to be included in the budget in line with Government priorities, to ensure we sustain our investment in public services.

The next component of the budget is non-core expenditure. For 2024 the Government is providing €4 billion of non-core expenditure, that is spending that is not part of the day-to-day recurrent expenditure, or core to the work of a Department. This reflects the Government's two-pronged approach to fiscal policy and expenditure management, where non-core funding has been used as an additional tool to strengthen our response to economic and social issues.

This funding will provide mainly for the continuation of our extensive humanitarian support for refugees from the war in Ukraine of €2.5 billion and continued Covid measures where required of €750 million. The revised strategy provides an increase of 6.1% in core expenditure for 2024. This is a €1 billion increase in funding and resources for budget 2024 but must accommodate a range of priorities. We cannot meet all the competing demands on public expenditure but we can provide support to those most in need, continue to invest and improve our public services and invest in our public services.

The final component for the 2024 budget strategy is for the provision of additional capital investment from existing budget surpluses. Following discussions with the Minister for Finance I can confirm that for 2024 out to 2026 there will be an additional €2.25 billion of capital funding allocated to the delivery of vital infrastructure projects and other Government priority projects such as the climate action fund. This funding is additional investment that will be sourced from the Exchequer windfall receipts. Recognising the capacity constraints across the economy, it is intended that the additional funding will target suitable projects that are ready for development.

This year has presented further challenges to all of us but careful management of our economy and public finances has allowed us to respond to many of these challenges while overseeing the growing health of our public finances. Our economy and our people continue to show resilience. The policy path set out in the summer economic statement continues the dual strategy of adjusting public expenditure growth with the use of supplementary non-core funding for external challenges. Importantly the strategy signals that with price pressures forecast to ease as we move into 2024, we can plan for a smooth return to the overarching anchor of 5% public expenditure growth from 2025 onwards.