I welcome the advice from both the Irish Fiscal Advisory Council and from the Governor of the Central Bank of Ireland.
Both documents outline the economic context against which budgetary policy is being formulated. My Department is currently updating its forecasts - these will underpin Budget 2022 - and our assessment is that the economy is recovering strongly as the various public health restrictions are gradually relaxed. This broad assessement of the economic backdrop is largely consistent with the views of the Council and Bank.
That said, I am conscious that conditions in the labour market are lagging somewhat - as is normally the case in most advanced economies - and that is why Government is keeping many of the fiscal supports in place for the next few months.
In terms of the implications for budgetary policy, a number of key issues are outlined both by the Council and Bank. Firstly is the need to address structural fiscal challenges, while second is the issue of high public debt.
In relation to the former, the Summer Economic Statement set out a medium-term budgetary strategy that seeks to address this. Government is putting budgetary policy within a medium-term framework, a development that has been welcomed by the Fiscal Council. This is being operationalised by way of an expenditure rule, through which public expenditure will be tied to the estimated trend growth rate of the economy. Such an approach enhances fiscal sustainability while allowing investment in key government priorities, particularly capital investment.
I note, in particular, the Fiscal Council’s view that the expenditure plans are at the limit of what is prudent. I agree with this assessment, and that is why the Government introduced expenditure ceilings that will apply irrespective of revenue performance.
The second key point is that of public debt, and I share the assessment that this needs to be stabilised and then put on a downward path. But it is also important to stress that both the Council and Bank are supportive of the view that allowing public debt to rise was the appropriate response to the pandemic.
Nevertheless, at almost a quarter of a trillion euros, Ireland's public debt is amongst the highest (on a per capita basis) in the developed world. That is why, by 2023, we will eliminate the need to borrow for day-to-day spending while continuing to invest in the productive capacity of the economy. This approach - gradually eliminating borrowing for current spending while continuing to invest in our future - is the best way of supporting economic improvements while ensuring fiscal sustainability.