Gerald Nash (Louth, Labour)
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191. To ask the Minister for Finance his plans to increase general spending as a percentage of GDP in view of the low rate here when compared to the European Union 27; if general spending will be increased and sustained in line with the eurozone average during the lifetime of the Government; and if he will make a statement on the matter. [14587/20]

Paschal Donohoe (Dublin Central, Fine Gael)
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As is widely recognised, GDP figures for Ireland can be misleading due to statistical distortions and are therefore of limited use for comparative purposes. Instead, modified Gross National Income, or ‘GNI*’, an alternative metric published by the CSO, provides a more suitable measure of the underlying size of the Irish economy and as a result is a more appropriate indicator for international comparison.

General government expenditure in EU Member States in 2019, was estimated to be 46.7 per cent of GDP. The equivalent Irish figure was 41.9 per cent of GNI*.

These figures proceed the unprecedented global crisis that we are currently living through. The Covid-19 pandemic is the most significant shock to the world economy since the global financial crisis and, indeed, the impact is likely to be more severe. The response to the pandemic has resulted in a ramping-up of government expenditure this year.

The Stability Programme Update, published by my Department in April, projects general government expenditure of €95.7 billion this year, the equivalent of 55.1 per cent of GNI*. As the economy begins to reopen, general government expenditure looks set to fall next year as temporary policy supports are unwound. As such, general government expenditure is projected at €93.3 billion (49.0 per cent of GNI*) next year.

The level of uncertainty regarding the short- and medium-term path for the economy is unprecedented. It is as yet unclear how different the new equilibrium will be from the old, both in Ireland and for other euro area and EU Member States. Apart from the uncertainty regarding expenditure paths in the short-term, the longer-term effects of the pandemic will need to be considered carefully, especially for the Irish economy with its deep integration into the wider global economy.

That being the case, aiming to increase general government expenditure to equate with overall EU rates would not be appropriate. Government fiscal policy is guided by what is right for the economy at a particular point in the cycle, not by external benchmarks based on the overall budgetary patterns of 27 economies with disparate fiscal and economic situations. The Covid-19 crisis has only reaffirmed this.

Gerald Nash (Louth, Labour)
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192. To ask the Minister for Finance the status of his plans to manage the public finances to ensure necessary investment in infrastructure and skills required to enhance competitiveness as outlined in the programme for Government; and if he will make a statement on the matter. [14588/20]

Paschal Donohoe (Dublin Central, Fine Gael)
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The Stability Programme Update, published in April, estimated a general government deficit of €23 - €30 billion in 2020. As I have said previously, it is entirely appropriate that Government runs a deficit and increases borrowing to support the economy in these unprecedented circumstances. However, borrowing at this scale cannot go on indefinitely and once circumstances allow, we must return the public finances to a sustainable path.

Looking ahead, fiscal policy is likely to continue to follow a three phased response as follows:

During phase one, the Government has taken swift action to introduce emergency measures aimed at protecting individuals and businesses during the initial period of uncertainty. Cumulative support provided by Government, so far, amounts to some €15.5 billion, or the equivalent nearly 8 per cent of GNI*. The level of support is exceptional and will be unwound as we continue to reopen our economy.

The main concern in phase two, the ‘recovery phase’, will be to get as many people back to work as quickly as possible. As set out in the Programme for Government, a number of initiatives will be set out to get business back on their feet, bring back confidence to consumers and kick start the economy. This will be done through a targeted, time-limited stimulus, with the primary focus on boosting employment. The Programme for Government also sets out the proposed Recovery Fund, a key pillar of which will be reskilling and retraining for those who have lost their jobs as a result of the pandemic and are unable to return to their previous employment.

Once the economy has recovered, fiscal policy will be required to pursue a credible path towards sustainability. Over the long-term, investment in infrastructure and skills depends on having the public finances on a solid footing.