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Departmental Policies

Dáil Éireann Debate, Wednesday - 16 June 2021

Wednesday, 16 June 2021

Questions (88)

Sorca Clarke

Question:

88. Deputy Sorca Clarke asked the Minister for Finance his views on the a recent paper published by the ESRI on 3 June 2021 which argues for an increase in State borrowing to increase Irish housing supply; his views on its findings; and if he will alter the fiscal policy in order to double the level of capital investment in public housing in Budget 2022. [32447/21]

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Written answers

The paper to which the Deputy refers calls for higher levels of borrowing to increase public spending on housing, but it is important that we place this discussion in full context.

Last year, a general government deficit of €18½ billion was recorded – the equivalent of nearly 9 per cent of modified gross national income (GNI*). For this year, the Stability Programme Update projected a deficit of another €18 billion. This was before the announcement of a range of support measures in our National Economic Recovery Plan, which will add approximately €2¼ billion to the deficit this year.

In terms of housing, the Government has already made extensive commitments in this area, including a record Exchequer funding allocation of €3.1 billion in Budget 2021. Total housing expenditure has more than doubled since 2016 and as of 2021, it will be more than 40 per cent above the peak level in 2008. It is therefore a gross simplification to suggest that providing additional housing is purely a matter of increasing Exchequer funding.

While public investment has an obvious role in alleviating housing market pressures, there are also significant non-fiscal constraints. In particular, the public health measures needed to suppress Covid-19 have placed a direct restriction on the construction of new housing. The industry is now facing increased costs and difficulty sourcing building materials as a result of the pandemic, high international demand, and Brexit. There are also skills shortages within the construction sector, which is why the Government is providing significant investment in skills and trades. As acknowledged in the report, simply increasing expenditure will not negate these capacity constraints.

From a broader fiscal perspective, as we move beyond the extraordinary events of the pandemic, it is important to remember that it is neither sustainable nor prudent to run perpetual deficits. This fact is underlined by the European Commission’s recent announcement that the General Escape Clause of the EU fiscal rules should not extend beyond 2022.

Pre-pandemic, Ireland’s level of public debt per capita was one of the highest in the developed world – this level of debt has of course increased as a result of our response to the crisis. We must build up fiscal buffers to deal with the clear fiscal challenges ahead, so we can address future shocks by providing support at the right time – as we have done during the pandemic – and steadily reduce our public debt to lower and safer levels. Ireland cannot afford to become a fiscal outlier, as we saw during the crisis of only a decade ago.

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