Bernard Durkan (Kildare North, Fine Gael)
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216. To ask the Minister for Finance the extent to which Ireland's economy remains stable, attractive and capable of combatting inflation to the greatest extent possible; and if he will make a statement on the matter. [56042/22]

Paschal Donohoe (Dublin Central, Fine Gael)
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The Irish economy began this year on a solid footing. As we emerged from pandemic-relating restrictions, economic activity rebounded strongly with little, if any, evidence of permanent ‘scarring’ to the economy.

However, the global economic outlook quickly deteriorated as Putin’s war in Ukraine and weaponisation of energy supply sparked inflationary pressures. We are clearly heading into some very choppy waters with the international economy in a particularly precarious position. Inflation continues at high levels in Ireland and abroad and this is eroding household incomes and squeezing firm margins. However, Ireland enters this period from a position of strength, both in terms of the economy at large as well as our public finances.

Ireland’s labour market continues to perform strongly, with well over 2½ million people at work and an unemployment rate of just 4.4 per cent in October – close to the lowest on record. The unemployment rate is expected to increase marginally over the remainder of the year but is forecast to remain at low levels of around 5 per cent throughout next year despite mounting economic headwinds.

Reflecting the strength of our public finances, I announced a generous package of cost-of-living supports in Budget 2023 to combat inflation and safeguard the stability of the Irish economy. The total package for Budget 2023 amounts to €11 billion, €4.1 billion of which is in the form of temporary cost-of-living measures. The temporary and targeted nature of these measures will ensure that those hit hardest by inflation are supported without inflationary pressures becoming inadvertently exacerbated by government actions.

Despite the headwinds we may face, the fundamentals of the Irish economy remain strong. We have a record number of people at work, we will run a budget surplus this year and capitalise our National Reserve Fund, while at the same time supporting households and businesses to help alleviate the rising price pressures.

Bernard Durkan (Kildare North, Fine Gael)
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217. To ask the Minister for Finance the extent to which he remains confident that the Irish economy, including mortgage borrowers, are protected insofar as is possible from inflationary costs generated from within or outside the country; and if he will make a statement on the matter. [56043/22]

Paschal Donohoe (Dublin Central, Fine Gael)
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The Consumer price (HICP) inflation picked up sharply over the course of the last year and in October stood at 9.6 per cent. Almost every advanced country in the world is in the same position, with euro area inflation reaching a record 10.7 per cent in October.

The key driver of global inflationary pressures at present is the sharp rise in energy, food and other commodity prices as a result of the war in Ukraine. Spillover effects from higher energy prices are also being felt in other sectors, such as food (via fertilisers and fuel costs) and consumer goods and services (via higher energy inputs). As a result, non-energy inflation has picked up sharply in recent months, indicating broad based inflationary pressures.

In response to rising inflation, central banks across advanced economies have begun tightening monetary policy. Indeed, the ECB has raised interest rates by a cumulative 2 percentage points so far this year. As Minister for Finance, monetary policy is not a part of my remit and it is not my place to comment or speculate on the setting of Eurozone interest rates. However, interest rates changes do have an impact on the economy as an increase in interest rates will increase the cost of borrowing, making it more costly for households and businesses to borrow money and invest.

Against this backdrop, the primary focus of Government, in Budget 2023, has been to do as much as possible to provide relief to households and firms without making the inflationary situation worse. Budget 2023 includes an overall package of €6.9 billion for next year, including adjustments to income tax bands and increases in social welfare and pension rates. Complementing this is a set of one-off measures amounting to €4.1 billion, which take effect from the final quarter of this year. The one-off package includes three €200 electricity credits to each household, an additional social welfare payment, a double payment of child benefit, the extension of the reduction in excise duties and the VAT rate on gas and electricity to end-February as well as the Temporary Business Energy Support Scheme.

This approach balances the need to provide necessary fiscal support to households and firms while at the same time, avoiding a situation in which the Government’s fiscal response becomes part of the inflation problem.