Paschal Donohoe (Dublin Central, Fine Gael)
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I wish everybody a good afternoon. I thank the Cathaoirleach and members of the committee for the opportunity to be here today as part of the pre-budget scrutiny process. When I appeared before the committee in July, the Government had just published the summer economic statement and the committee discussed the agreed budget parameters. Today I can address developments that impact on our budgetary considerations ahead of budget day on Tuesday, 10 October.

The Minister for Finance has already touched on the impact inflation has had on households and businesses since late 2021 and throughout this year. The Government has, as the committee knows, deployed numerous measures to reduce this burden and help with the challenge of rising prices, particularly higher energy costs. There is no denying that inflation continues to pose a real policy risk, principally in finding a balance in responding with support while not adding to inflation growth. This is a challenge we think we have met successfully to date.

My Government colleagues and I allocated €12 billion in total expenditure and taxation measures since budget 2022 to address the impact of price rises on the cost of living. These measures, both permanent and temporary in nature, were brought in to protect society from the worst effects of this historically high inflation with particular focus on those with the lowest incomes. We have, in other words, been giving more help to those who need it most.

The use of temporary measures prevented once-off supports being built into the core annual expenditure of Departments while helping households and businesses with elevated costs. This will, in the future, also minimise the inflationary impact of Government interventions. The success of the two most recent budgets can be seen not only in what they have meant for our national finances but also in respect of the changes and improvements that have been made to public services and infrastructure. Those include the increase in capital investment under the national development plan, the expansion of service delivery across the public service to meet increasing demand from a growing population, the reduction of the cost of key public services and the extension of a public sector pay deal that delivered and maintained industrial peace in a challenging period. We also delivered considerable support to meet the challenges of Covid-19 and, soon after, the challenge of providing a humanitarian response for the people of Ukraine.

Thankfully, inflation has fallen from its historic high of an 8.1% average in 2022. This reduction is estimated to continue in 2024 and 2025. This forecasted reduction, if and when it materialises, will be welcomed and means the Government can plan to return to its medium-term expenditure strategy. However, in the short term, we are aware of the impact of higher prices on the standard of living for so many. We must respond to the immediate challenge of stubborn prices as we wait for the inflation path to smooth.

To that end, discussions are being finalised within the Estimates process to bring forward targeted, impactful measures that will benefit those most in need and be conscious of the impact that higher prices are having on our society. These measures will be temporary in nature, as they were a year ago. They will be limited and of a smaller proportion than that in the budget last year when prices were at their very highest.

To reiterate the Government’s budget 2024 strategy discussed at this committee in July, we outlined that there will be an expenditure ceiling rise to €95.5 billion. Core spending next year will reach €91.2 billion, non-core spending will reduce to €4 billion in total and an additional €250 million will be made available for capital projects. The package is designed to assist us in dealing with the effects of a stubborn inflationary cycle while attempting not to add to those price pressures. It reflects a significant, prudent and sustainable level of investment in the quality of life in Ireland and in our wider society.

It is important to plan an expenditure approach that responds to the economic environment but remains fiscally sustainable. As set out in the summer economic statement, this increased ceiling will provide for an expenditure budget of €5.2 billion in 2024. This is an increase of 6.1% on the estimated core expenditure for 2023. This adjustment over the target 5% rate of growth in core expenditure balances the need to protect core public services, sustain our investment in the NDP while minimising the risk that the expenditure policy contributes to the risk of inflation growing in the future.

Approximately 3% or €2.3 billion of the core current expenditure increase is available to meet existing levels of service. This includes: the full-year impact of measures carried over from budget 2023; funding for demographic developments, notably to support a growing population; and meeting public service pay commitments.

Capital expenditure under the NDP will increase by a further €900 million in 2024. Overall capital investment will reach €12.8 billion in 2023, including €200 million from the national recovery and resilience plan. This represents an increase of 10%, in line with the NDP. It is worth noting that capital spending has increased from €3.7 billion in 2015 to almost €13 billion this year. This clearly shows that capital expenditure has been prioritised in recent years and continues to be a Government priority. The remaining amount of approximately €2 billion will fund new measures in the budget, including measures in the social protection realm, childcare and health measures, and I hope the ability for a new public sector pay agreement. This will, of course, require appropriate prioritisation of the numerous demands across so many different sectors.

The Government is also providing €4 billion in non-core expenditure for temporary measures to provide humanitarian supports for refugees arriving from Ukraine and a more limited Covid-19 provision. There are also small provisions for funding from the national resilience and recovery plan, Brexit-related projects and REPowerEU funds. As with last year, this approach facilitates responsive fiscal policy that can provide supports to key emerging issues while protecting day-to-day spending.

The Government has also agreed to provide additional capital funding, from windfall receipts, of €250 million to expedite projects in 2024 that are at an advanced stage. In total, €2.25 billion will be provided in additional windfall capital between 2024 and 2026. This means that the year-on-year growth across the years 2023 to 2026 in capital allocations will be 6.7%, 10.2%, 9.8% and 7.7%, respectively.

Budget 2024 negotiations will not require a focus on capital allocations for 2024 or 2025. After the budget, there will be a focus on sectoral allocations from the NDP for 2026 to 2028 inclusive, to include the windfall funding for the years that I referenced earlier.

Managing the delivery of public services within budgetary allocations is, of course, a key responsibility of each Minister and his or her Department. Officials in my Department are in regular communication with colleagues across all Departments to ensure expenditure is managed within the overall budgetary parameters and that there are many measures in place to ensure the budgetary targets are met. These are seen on a monthly basis in our Exchequer returns. Budgetary reform remains central to public expenditure management. To this end, the mid-year expenditure report, published by my Department every July, provides details of the different processes that are undertaken to deliver this.

In just under two weeks, the Minister for Finance and I will bring forward what we believe will be a balanced, affordable and sustainable budget package to address, what is hopefully, the last of our inflationary challenges while providing for further investment in our economy, public services and infrastructure.

As I said to the committee when last here, the careful management of the public finances over the past decade has allowed us to do the following: increase our investment in core public services; build more houses, schools and other vital projects through the NDP; and help at a time of great pressure as we confront pandemic and a period of soaring inflation. The budget will continue this approach. There has been a decade of investment in our society by the Government. Budget 2024 will see further growth in capital investment and public services. However, in framing this, the Government is well aware that the economy is at full employment and we must begin the smooth back to 5% expenditure targets to ensure long-run sustainability.