Dáil Éireann Debate, Tuesday - 22 February 2022
290. Deputy Bernard J. Durkan asked the Minister for Finance the degree to which he and his Department can continue to influence and co-ordinate fiscal matters in such a way as to support and encourage growth and stability in the economy of Ireland; and if he will make a statement on the matter. [10045/22]
View answerAs the Deputy is aware, fiscal policy operates at many levels, but the Government’s over-arching budgetary policy aims to pursue a counter-cyclical strategy, in order to support both economic growth and stability. Reflecting this approach, the Government allowed public indebtedness to rise over the last two years in order to mitigate the economic fallout of the pandemic. This was the appropriate counter-cyclical strategy, with budgetary supports helping to cushion the negative economic impact of the necessary public health restrictions. In turn, the prudent management of the public finances in the years preceding the pandemic helped build the budgetary space to allow such an approach. However, as we look beyond the pandemic, we need to once again balance the books over the economic cycle and put the debt ratio on a downward path, in order to maintain the sustainability of the public finances in the future.
To this end, in last year’s Summer Economic Statement, the Government set out a pathway consistent with investing in our economy and society while, at the same time, reducing the budgetary deficit over time. Our medium-term budgetary strategy is now anchored to an expenditure rule. Under this rule core expenditure growth, that is, excluding Covid-related expenditure, is fixed at just over 5 per cent per year. This is in line with the economy’s estimated trend growth rate and will allow significant investment while at the same time stabilising the public finances.
As the Deputy will be aware, the public finances out-performed our expectations last year with a deficit of around 4 per cent of GNI* recorded, around half the level we expected it would be last spring. Most of this improvement was due to better than forecast revenue receipts, and the directing of this additional revenue to deficit reduction. A continuation of this prudent approach coupled with the phased exiting of Covid-related supports, will mean that the economic recovery will help restore balance to the fiscal accounts over the short-term. In addition, the Department’s medium-term economic projections envisage a return to reasonably strong economic growth in the coming years.
Nevertheless, there are a number of medium-to-long-term fiscal challenges already identifiable on the horizon. Amongst these are the challenges to the public finances posed by the so-called ‘dual transitions’ to a digital and green economy, as well as the expected ageing of the population over the coming decades. The window of opportunity to address these challenges is rapidly closing. Policy intervention will be require to mitigate the inevitable implications of ageing demographics, and the dual transitions, otherwise we risk putting the public finances on an unsustainable trajectory over the medium-to-long-term. At the same time, our revenue streams will be affected by the possibility of lower corporation tax receipts.
