Dáil Éireann Debate, Tuesday - 7 July 2020
191. Deputy Ged Nash asked 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]
View answerAs 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.
