Dáil Éireann Debate, Tuesday - 26 July 2022
327. Deputy Peadar Tóibín asked the Minister for Finance if his attention has been drawn to the Central Bank’s warning that the State has reached the limit of sustainable spending (details supplied); and if he will make a statement on the matter. [39785/22]
View answerI have noted the Central Bank’s commentary on risks surrounding the sustainability of public expenditure as published as part of the Quarterly Bulletin. The report highlights vulnerabilities to the public finances arising from a reliance on volatile corporation tax receipts. This is a view which I share, and I have warned many times that unreliable corporation tax revenues are not a sound basis for permanent expenditure. In particular, I have outlined previously how the very high degree of concentration in the corporate tax base, with just ten large companies accounting for more than half of receipts, represents a clear risk. This concentration means our public finances are subject to the business decisions of a small number of highly profitable multinational firms.
I have asked my officials to examine how much of our current corporation tax yield may be ‘excess’, that is the amount that cannot be explained by the growth rate of the domestic economy, in advance of Budget 2023. Identifying this excess will enable us to better plan for a potential downturn in corporation tax receipts in the years ahead while we continue to work to ensure that Ireland remains a top-tier destination for foreign direct investment.
As the Deputy will be aware, Government has committed, in the Summer Economic Statement, to a medium-term budgetary strategy that sets out how public spending will be controlled at sustainable levels through an expenditure rule, whereby the growth rate of core current public expenditure will be fixed at the trend growth rate of the economy (5 per cent per annum). Even if other variables differ from expectations, the expenditure ceilings will remain fixed. This means that even if corporation tax revenue continues to exceed expectations we will not fund additional expenditure on this basis.
Government has temporarily and on a one-off basis only departed from this strategy for 2023. Next year, a Budget package of €6.7 billion will be introduced. To protect public services, core public expenditure will now grow at 6½ per cent. The planned tax package has also been more than doubled and now stands at €1.05 billion. This is in recognition of the radically altered economic environment, with inflation now running at multi-decade highs. Reflecting this, Budget 2023 will be a ‘cost of living’ Budget, predominately focussed on helping to ease the burden of inflation on households.
However, I would stress that this is an amendment solely for one year. From 2024 onward, we will return to the parameters set out in the medium-term budgetary strategy, with core current expenditure growth fixed at 5 per cent. This approach strikes the appropriate balance between providing assistance today while ensuring that we are in a strong fiscal position for the challenges of the future.
