Paschal Donohoe (Dublin Central, Fine Gael)
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When I appeared here in July, the Government had published the summer economic statement and we discussed the agreed budget parameters. Today I will brief the committee on developments since then that will affect the considerations being made as part of the budgetary negotiation process ahead of budget day on 1 October.

While budget 2024 was framed in the context of the cost-of-living crisis, thankfully, inflation rates have now eased significantly with headline inflation falling to below 2% in August. Budget 2025 is, therefore, being prepared with a view to building on the progress made in the Government’s previous four financial statements. It will aim to continue the improvement made in public services and our schools, roads and public transport to support a population that has grown faster than expected, to sustain strong economic growth and to support improvement in living standards.

The past four budgets delivered by this Government have successfully balanced the dual challenge of remaining responsive to economic and social developments while ensuring the public finances remain safe. Throughout the many challenges experienced during the past four years, we have delivered sustainable and continued investment in public services and infrastructure and also targeted help at those who need it the most. The use of temporary measures helped households and businesses with elevated costs while avoiding adding to the inflationary pressures.

In terms of delivery, the previous budget packages supported strong economic performance in a number of ways - delivering increased capital and infrastructural investment under the NDP; expanding public services to meet increased demand from a growing population; reducing the cost of key public services such as public transport, childcare, education and healthcare; and extending the public sector pay deal to ensure continued industrial stability in a challenging economic period.

As the Minister for Finance has already pointed out, our economy continues to perform well and we expect that this will continue over the medium term. The recovery and strength in the economy has delivered record levels of employment with a projection for almost 2.8 million in employment next year compared to just over 2.3 million pre-pandemic. This has driven higher tax revenues, which in turn has helped to drive demand across the economy for goods and services. We, of course, face many competing pressures as we finalise the Estimates process for 2025. At the end of August, gross total Voted spending was €63.6 billion. This is 4.3% above profile and 12.9% higher than during the same period last year. The key drivers of this overrun are health spending on the current side and housing and education spend on the capital side. These challenges continue to be assessed and reviewed as we progress the preparation of budget 2025. Discussions are now being finalised within all Departments to agree a budget that will benefit Irish society and improve standards of living.

Budget 2025 will see total expenditure increase by €6.9 billion or 6.9%. This can be broken down into total current expenditure ceiling of €90.9 billion and a total capital ceiling of €14.5 billion. A key element of the overall expenditure amount for 2025 is the agreement reached with the Department of Health and the HSE over the summer. An additional amount of €1.5 billion has been provided for the health sector in 2024 with existing level of service, ELS, funding of €1.2 billion to be provided in 2025. This additional funding provides an opportunity to strengthen financial planning and governance within the HSE and it is crucial that there is a clear link between the significant funding provided and the delivery of healthcare outputs and better health outcomes for patients.

The overall medium-term expenditure strategy set out in the stability programme update, SPU, included the provision of a €4.5 billion contingency reserve from 2025 onwards. At this stage, it is envisaged that the full amount or nearly the full amount of the contingency reserve will be required to meet spending commitments in 2025. These commitments include the provision of humanitarian assistance to arrivals from Ukraine, the funding our agencies need to provide services to people seeking international protection, legacy impacts on the health service from the Covid-19 pandemic and certain European capital funding programmes such as RePower EU and the Recovery and Resilience fund. All of this is included in the overall ceiling and will be allocated to Departments. Given the uncertainties in relation to the quantum and duration of the bulk of this expenditure, the contingency provision will be reviewed as part of the annual Estimates process.

The budget will see the expenditure level move to €105.4 billion. This will provide against all the outcomes I have described before: higher levels of investment in the NDP; new measures in line with Government priorities, including in childcare and disability; meeting the demand for public services; and continuing to fund measures to provide humanitarian support.

Approximately €3.7 billion of current expenditure increase is available to meet ELS costs. This includes the full-year impact of measures carried over from budget 2024, funding for demographic developments and the public service pay agreement.

Capital expenditure will increase by €1.4 billion next year with capital investment reaching some €14.5 billion. The remaining €1.8 billion will fund new measures in the budget, including a social welfare package and other measures to improve the overall quality of life for our people. With regard to capital investment, all of this will be part of the NDP, which commits €165 billion of our country's money. The committee will be aware of the decisions I made earlier in the year to allocate an additional €2.25 billion between 2024 and 2026 to schools, hospitals and transport projects. We also took additional measures to meet the climate and environmental challenges we face now and in the future. In addition to the existing NDP allocations, there will be additional capital available from 2026 to 2030 through the infrastructure, climate and nature fund. This is made possible only because we have been running budget surpluses in the first place.

Budgetary reform remains central to public expenditure management. Every summer, my Department publishes the mid-year expenditure report, which provides details of the different ways that the Government aims to deliver better outcomes for public services and better value for money. The issues included range from the well-being framework to the green budgeting initiative to performance and equality budgeting to published research papers such as the spending reviews, all of which help in forming the budget.

In less than two weeks' time, the Minister for Finance and I will be bringing forward a balanced and fair plan that will build on the progress of the past four years rising to the challenges we still face. We aim to minimise the risk of addling to inflation and I am confident that the expenditure and tax package proposed will avoid us doing that as we have done in the past.

In framing this year’s budget, the Government is very cognisant that while 2024 has presented challenges on the expenditure side, the forecasts and outlook again look positive and we are in position to address these issues because of our public finances. I thank the Acting Chair for the opportunity to address the committee and I look forward to members' questions.