Rose Conway-Walsh (Mayo, Sinn Fein)
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125. To ask the Minister for Public Expenditure and Reform the deflator that is applied to expenditure projections by his Department in order to estimate the cost of maintaining the current level of public services and benefits in real terms in future years; and if he will make a statement on the matter. [20370/23]

Paschal Donohoe (Dublin Central, Fine Gael)
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Inflationary pressures are generally dealt with as part of the normal budgetary process. This places the onus on Departments to manage expenditure, achieve efficiency dividends and value for money on a year by year basis. However, there is a limit to this approach. The escalation in inflationary pressures in 2022, with inflation reaching 8.1 per cent, was significantly above the assumed average of 2 per cent. The scale of this increase posed a risk to the real value of public services.

In order to support the real value of public services, a temporary adjustment to the medium term expenditure framework was made for Budget 2023. This sees additional core funding being made available over 2022 and 2023 above the amount originally set out in the Mid-Year Expenditure Report 2021, with core spending rising to €85.9 billion in Budget 2023.

Existing Levels of Service or ELS costs relate to the additional funding that might be needed to maintain to same level of supports and public services as currently provided by Government. This includes costs arising from areas such as any demographic pressures on pensions or other areas; carryover costs from measures already introduced in prior year Budgets; and public service pay commitments under existing pay deals.

Under the approach set out in our Medium Term Expenditure Framework, approx. 3% of the core current expenditure base is estimated to meet ELS costs each year. This requirement is reviewed each year as part of the Estimates process using the most up to date information available. In Budget 2023, €1.9 billion was allocated across Departments to meet ELS needs.

Overall, Government has sought to balance the need to provide supports while, at the same time, seeking to ensure that budgetary policy does not become part of the inflationary problem. This has been done through:

(i) increasing core permanent spending in recognition of the core inflationary environment, by less than the level inflation to ensure public policy does not lead to second round effects; and

(ii) deploying non-core expenditure to provide temporary and targeted Cost of Living measures to assist households, individuals and businesses with energy price increases in particular.

This approach has sought to balance the challenge of supporting public services and the most vulnerable in the face of substantial price pressures, while maintaining fiscal sustainability in the longer term.

The Stability Programme Update published last month outlined projections of inflation returning to a rate closer to that seen in recent years, declining to 2.5% in 2024 and 2.0% in both 2025 and 2026.

Over the coming weeks I will be further considering our budgetary and economic position with my colleague, the Minister for Finance, to set the fiscal parameters for Budget 2024. This will be set out in the upcoming Summer Economic Statement.