I thank the committee for the invitation to appear here today to discuss the summer economic statement. I will focus on the current economic and fiscal outlook, and I look forward to hearing the committee’s views regarding some of the key issues in the medium term. After a difficult and unprecedented 16 months, we are beginning to see light at the end of the tunnel. The vaccination programme is well advanced, with approximately half of our eligible population now fully vaccinated. Restrictions are gradually easing and there are signs of recovery, albeit uneven, in the domestic economy.
Having said that, we cannot expect to return to the same world we occupied before. The pandemic has changed the way in which we work and live, and there will be lasting implications that will take some time to become clear. While our vaccine programme is going well, we must also be cognisant of the fact large parts of the global population, particularly in developing countries will not be immunised for some time, leading to the possibility of the emergence of further strains of the virus. This is the context in which the summer economic statement has been developed. It provides the context for the year ahead, with particular regard to the upcoming budget.
The summer economic statement incorporates an upward revision to the gross domestic product, GDP, projection for this year, which is now projected to grow by 8.75%. Projected growth in modified domestic demand remains unchanged at 2.5% this year and 7.5% next year, although all of this depends on where we are with our health. Put simply, I expect the recovery to continue and strengthen into next year. Households and firms are adapting. There is a move towards online transactions and investment in remote working technologies. As the public health containment measures ease, we can expect to see further recovery in the labour market.
It is unfortunate, however, that many firms face a difficult future in the post-pandemic world. The Government will work towards assisting these firms in the transition to newer and more sustainable sectors. We will also facilitate workers in retraining and upskilling. Our response since the outset of this pandemic has been to minimise the permanent fallout through the provision of supports to households and businesses. That said, to do this, budgetary policy took a countercyclical approach.
However, this has to work both ways to be effective. As the private sector and the broader economy begins to recover, we need to roll back on some temporary supports to prevent the economy from overheating and begin the journey to reduce our deficit.
These public supports have been massive. Taking into account the measures announced in the national economic recovery plan, €48 billion has been made available up to 2022 in the form of direct expenditure, tax measures and below-the-line supports. The committee is familiar with the larger figures: €8 billion in the pandemic unemployment payment; €6.5 billion in two wage subsidy schemes; and €650 million for the Covid restrictions support scheme.
As I have said on many occasions, we allowed indebtedness to increase in order to look after our economy and help our society. We also need to acknowledge, however, that as the worst effects of the pandemic pass and the economy begins to recover, we cannot continue to finance very large deficits. The current level of public spending is far in excess of what can be supported by the domestic tax base. Our public debt ratio is now among the highest in the world, and is due to exceed a of a trillion euro next year. Going forward, the Government’s budgetary strategy will involve an expenditure ceiling of €88.2 billion for next year for core public expenditure. In addition, we will also provide for a continuation of some temporary supports amounting to €6.8 billion. This will be consistent with a budgetary deficit of 6.2% of modified gross national income and 3.4% of GDP.
The deficit projection is higher than it was in April. This is due to additional expenditure to allow for continued investment in housing and other critical infrastructure. Expenditure ceilings are also being set for later years in order that the headline deficit will be approximately 2.8% of modified gross national income, or 1.5% of gross national product, by the mid part of the decade. Expenditure growth has been set at 5%, which is broadly in line with the trend growth of the economy. If actual economic performance deviates from expectations, automatic stabilisers will be allowed to operate fully to keep expenditure fixed. These projections cover the period 2021-25. They also include provision for tax measures of €500 million per year. Of course, all of these forecasts depend on conditioning assumptions regarding where we are with the virus.
Our future challenges will revolve around how we reduce the deficit to low levels by the middle part of the decade. Returning the public finances to a sustainable trajectory that will put us in the best position to meet upcoming challenges. I emphasise, in particular, the focus on reducing our deficit during the first half of the period relating to this plan, when, hopefully, our health situation will continue to improve.
We saw the value of balanced budgets before the pandemic. There will be a value over time in reducing our deficit. These pandemics may be once-in-a-lifetime events, but other longer-term issues will require challenging decisions in the months and years ahead. We need to finance two further transitions, namely, the transition to a carbon-neutral economy and the transition to a digitised economy.
Our population is, of course, ageing rapidly. While corporation tax has helped at times to plug the gap in some areas of public policy in recent years, there is a very real possibility that this revenue stream will soon begin to decline. Further agreement is needed within the OECD framework. International corporate tax reform, if and when finalised, could reduce our relative advantage in this area. My Department’s estimate is that corporation tax could be impacted by up to €2 billion annually over the short to medium term.
It is fair to say that we are facing into a better outlook, but there are still challenges ahead. We are by no means out of the woods. Many families and businesses know that to be the case. Our policy will continue to adapt to changing circumstances in order to build upon recovery and facilitate a move to a post-pandemic economy as smoothly as possible. I thank the committee for the opportunity to be here and I look forward to an exchange of views.