Written answers

Thursday, 16 December 2021

Photo of Thomas GouldThomas Gould (Cork North Central, Sinn Fein)
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248. To ask the Minister for Finance his views on and response to the ESRI paper, Prudent government borrowing can mitigate inadequate housing supply and upward pressure on prices and rent; and if he met with the ESRI on same. [55907/21]

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I am aware of the ESRI paper to which the Deputy refers, which calls for higher levels of borrowing to increase public spending on housing.  

The Government’s response to the Covid-19 pandemic has had a significant impact on our deficit. Last year, a general government deficit of €18½ billion was recorded – the equivalent of nearly 9 per cent of modified gross national income (GNI*). This year, Budget 2022 projected a general government deficit of €13.3 billion, nearly 6 per cent of GNI*.

Against this background, the Government has still made very extensive commitments in the area of housing. This reflects the priority which the Government places on boosting housing supply.

To this end, the Housing for All plan commits to increase housing supply and affordability by targeting the delivery of, on average, 33,000 new homes every year to 2030. This includes the provision of over 10,000 social homes per year and an average of 6,000 affordable homes to purchase or rent. The plan is supported by significant annual investment of over €4 billion in guaranteed State funding over the next five years.

While public investment has an obvious role in alleviating housing market pressures, there are also significant non-fiscal constraints. In particular, the public health measures needed to suppress the spread of the virus have placed a direct restriction on the construction of new housing. The industry is now facing increased costs and difficulty sourcing building materials as a result of the pandemic, high international demand, and Brexit. There are also skills shortages within the construction sector, which is why the Government is providing significant investment in skills and trades. As acknowledged in the report, simply increasing expenditure will not negate these capacity constraints. It is, therefore, a gross simplification to suggest that providing additional housing is purely a matter of increasing Exchequer funding.

From a broader fiscal perspective, as the recovery gains strength, it is important to remember that it is neither sustainable nor prudent to run perpetual deficits. Even before the onset of Covid-19, Ireland’s level of public debt per capita was one of the highest in the developed world.  The impact of the pandemic is expected to add nearly €6,000 per person to this ratio by the end of the year, bringing the level of public indebtedness to €47,250 for every citizen in this country.  

Looking beyond the pandemic, a number of fiscal challenges lie ahead, including financing the digital and climate transitions, as well as making provision for the future costs of an ageing population. It is also important that fiscal buffers are rebuilt and public indebtedness is steadily reduced once the pandemic has passed, so we can address future shocks by providing support at the right time – as we have done over the past twenty months.

While I keep close track of all important research published by the ESRI, I have not met with the Institute specifically to discuss this paper. However, it is important to note that since the publication of the paper, the ESRI have welcomed the fiscal stance taken in Budget 2022 and clarified that the analysis contained within the paper refers to a so-called “steady-state” scenario, a theoretical situation where macroeconomic and fiscal balance has been achieved and the government is not already running a very large deficit.

Finally, while I greatly respect the analysis produced by the ESRI, the Institute does not have a monopoly on providing economic advice.  I get economic and fiscal advice from a broad range of specialists, including my own officials and the Irish Fiscal Advisory Council.  In this vein, it is worth noting that the IFAC has welcomed the fiscal stance taken in the recent budget. 


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