Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

At the time of budget 2023, my Department forecast the total level of public debt at the end of 2022 to be €226 billion. This is a level equal to 45% of GDP, 60% of GNP or 86% of GNI*. Gross national income, or GNI* as we call it, is considered the most reliable measure of economic activity in Ireland as it removes globalisation activity and thereby provides a better measure of the domestic economy. The estimate of €226 billion is approximately €23 billion higher than levels at the end of 2019. This reflects the significant fiscal supports needed throughout the Covid-19 pandemic.

At over €44,000 for every person in the country, Ireland has one the highest per capitadebt burdens in the world. The Annual Report on Public Debt in Ireland 2022, which was published last month, provides an analysis of current debt developments in Ireland and explores the sustainability of Ireland’s debt in the context of the current macroeconomic environment. An important consideration, when assessing the sustainability of public debt, is the underlying structure of the debt and the State’s ability to make interest payments. This report shows the structure of Irish public debt insulates the public finances in the short term, given that the majority of debt is locked in at fixed rates and with relatively long maturities. Despite this, the recent rapid increase in inflation across advanced economies, as well as the associated shift in policy interest rates, highlights once again how quickly economic conditions can change. From a public finances perspective, the shift in the interest rate environment will have tangible implications into the future, and the refinancing of existing debt over the medium term will lead to increased debt servicing costs.

Additionally, Ireland’s narrow tax base, and in particular the overreliance on corporation tax receipts as a source of revenue, is a significant vulnerability. A shock to corporation tax receipts, or the income taxes that are associated with the multinational sector activity that generates these corporate revenue streams, could result in a very large deficit. Furthermore, the public finances remain exposed to an intensification of the inflationary impact of the war in Ukraine, as well as any fallout from the ICT sector shock. Looking further ahead, long-term structural changes such as the fiscal impact of shifting demographics and climate change also pose significant challenges for the public finances.

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