Dáil Éireann Debate, Wednesday - 21 April 2021
47. Deputy Mairéad Farrell asked the Minister for Public Expenditure and Reform his views on whether there will be a return of austerity given the stability programme update forecasts that Government expenditure as a percentage of GNI* is to start contracting from 2021 until 2025; and the taxes projected to rise over the same period. [20797/21]
View answerOne of the lessons of the last crisis was that cuts to public spending and tax increases during a time of recession do not ameliorate the downturn; they make things worse. The fiscal response to date is justified based on the dire situation in which we find ourselves. In terms of the stability programme update, I am concerned that there could be a return to austerity. I know that the projection in the update is on a no-policy-change basis. Can the Minister rule out a return to austerity in the coming years?
Over the course of 2020 and 2021, over €28 billion has been provided for additional expenditure to respond to Covid-19, with €12 billion of this amount included in the overall Government Expenditure ceiling of €87.8 billion for 2021. This is, by any measure, a substantial additional allocation in addition to core public spending, and allows for measures to support our people and businesses and to sustain key public services during the pandemic. The expenditure report for 2021 outlines the expenditure amounts in respect of both core expenditure programmes and Covid-19 expenditure. In setting out the technical expenditure position for the period to 2025, the stability programme update published last week maintains this approach of separately identifying core expenditure and Covid-19 related expenditure, with the aggregate amounts by year outlined in table 7 on page 37 of that document.
In setting out the technical expenditure position for the period to 2025, the key assumptions are that the exceptional Covid-19 related expenditure unwinds as the public health situation improves and as the economy and society recover from the pandemic, and core expenditure will increase over the period 2022 to 2025 by an annual average of approximately 3.5%. With Covid-19 related expenditure of almost €12 billion this year, amounting to over 5.5% of GNI*, this unwinding of exceptional Covid-19 expenditure is a key driver of the reduction in expenditure as a percentage of GNI*. Given the technical basis, which the Deputy has acknowledged, on which the expenditure projections in the stability programme update are prepared, the position in respect of the exceptional Covid-19 supports reflects current policy decisions.
Gabhaim buíochas leis an Aire. I note that the stability programme update forecasts growth capital expenditure to rise from €11.5 billion in 2020 to almost €16 billion next year. I welcome that, but in 2022, gross capital expenditure is projected to drop to 21%. No sooner had I got my hopes up when they were dashed. Taking the four years after the high point in 2021, gross capital expenditure will be down, on average, by 22%. I am concerned that the increase in capital investment might come at the cost of squeezing public services and social protections. There is a risk that the Government in trying to balance the books before balancing the economy and will end up doing neither. Are we not better served rebalancing the economy in the medium-term rather than trying to balance the budget and running the risk of failing on both accounts?
I thank the Deputy. In the current year, taking account of the carry forward from 2020, we have a capital budget of €10.8 billion, which is the highest amount in the history of the State. It is more than 5% of GNI* and it compares very favourably with other EU member states. The Government is committed to an ambitious public capital programme and we are currently reviewing the national development plan with a view to ensuring that its content is properly aligned with Government priorities and the national planning framework as well. For the purposes of the stability programme update, the central assumption we have made on a technical basis is annual expenditure growth in core terms, as we measure it, of approximately 3.5%.
While that is the assumption, policy decisions will be made by the Government over the coming period that will have an impact on the actual level of expenditure in the years ahead.
We are all very much aware of the scale of the crises we face. To put matters in context, we have an emerging crisis in credit provision due to the recent exit of two main banks, as well as the prospect of an estimated €2.2 billion a year of our corporate tax revenues drying up. Moreover, we face the prospect of significant numbers of businesses not returning to work as the stability programme update states that the Government will have no role in propping up firms the business model of which is no longer viable. Ireland's economic growth model, based largely on low corporate tax rates, is now seriously at risk from changes to the international tax regime. This will require a new vision for, and approach to, industrial strategy that will more than likely require greater State intervention and investment within the economy. Given that the European Commission will be reopening its public consultation into the reform of EU fiscal rules, where does the Government stand on this matter?
First, I disagree with the Deputy's assertion that Ireland's economic model, or projection of economic growth, is based on low corporate taxes. We are forecasting, in the stability programme update, a strong rebound in the domestic economy, with domestic demand starting to recover in the second half of this year, and strong underlying growth over the course of next year. That will be driven by consumer confidence, which will be rebuilt. It will also be based on the pent-up demand that currently exists because of the impact of Covid-19.
One of the core priorities we will have in bringing about economic recovery is helping people to get back to work. Helping the more than 400,000 people still on the pandemic unemployment payment, who have lost their jobs because of the pandemic, to return to employment will be a top Government priority over the period ahead. If we can make sensible decisions regarding the management of the public finances, the SPU demonstrates that there is a pathway back to sustainable public finances and a broadly balanced budget within a short number of years, avoiding the type of austerity our country has experienced in the past.
