Dáil Éireann Debate, Thursday - 11 May 2023
2. Deputy Ged Nash asked the Minister for Public Expenditure, National Development Plan Delivery and Reform if he plans to exceed the 5% expenditure rule in the context of budget 2024; and if he will make a statement on the matter. [22365/23]
View answerI apologise for arriving late. I want to ask whether the Minister of State, his colleague, the Minister, Deputy Donohoe, and the Minister for Finance, Deputy McGrath, intend to exceed their self-imposed 5% expenditure rule in budget 2024.
As I said to Deputy Conway-Walsh earlier, the Minister, Deputy Donohoe, is out of the country and I will take all the questions. A 5% growth rate for core expenditure was set out in the 2021 summer economic statement as part of our medium-term expenditure strategy. This strategy aims to align core voted expenditure growth with the trend growth rate of the economy as measured by GNI*. This seeks to ensure a level of public spending that is sustainable, allowing us to provide consistent investment in delivering public services and infrastructure.
The significant increases in investment of recent years are delivering valuable infrastructure across sectors, including housing, transport, education, climate action and others. This improves the quality of life in Ireland and invests in the future.
Expenditure for non-core, temporary measures to address the impact challenges, such as the Covid-19 pandemic, Brexit, cost-of-living measures and Ukraine-related spending, are dealt with separately from expenditure on the delivery of core programmes and infrastructure. This careful and planned management of the economy and public finances has allowed the Government to provide increased resources for core public services, investing in quality of life in Ireland to support a strong, fair and equal society into the future and to deliver significant and essential infrastructural projects through the national development plan. These projects will support this country’s climate ambitions, employment prospects, economic development and regional growth and put in place considerable supports to provide assistance to our people and businesses.
In setting expenditure parameters, however, the Government is aware that our fiscal strategy also needs to adapt to the evolving nature of our economy. Accordingly, last summer, the Government took the decision to increase the growth rate of public expenditure above 5% for 2023 to take account of higher-than-anticipated inflation. This short-term adjustment balances the two criteria underpinning the overall fiscal strategy. On the one hand, it provides additional resources to continue a steady upward trajectory of investment to support citizens through income supports, access to services and building infrastructure capacity. On the other hand, the upward adjustment is below the headline inflation rate to limit the risk of expenditure policy feeding into an inflationary spiral. In tandem with the non-core temporary expenditure response, this adjustment provides a balanced response to the challenging economic environment.
The stability programme update was published last month. This set out voted expenditure projections out to 2026, on a technical, no-policy-change basis. On this basis, the voted expenditure ceilings reflect the 5% growth rate anchor for core spending that has been set out under the medium-term strategy.
We know why the self-imposed general expenditure rule was imposed last year, that is, to take account of the high inflationary environment. The reality is that, for much of this year, inflation will be above that 5% target in terms of the Government's self-imposed expenditure rule. The Minister of State will appreciate the context of the macroeconomic success that this country is experiencing, the corporation tax surplus and, indeed, the strong performance of other tax heads. Given we have had a decade of lost investment in this country and given the context of a need for investment in public services that are playing catch-up, and in a situation where we have 12,000 people homeless and we arguably require 5,000 additional hospital beds to cater for a growing and ageing population over the next decade, the idea that we would ourselves limit expenditure is farcical, frankly, and does not take account of the needs of society. I am assuming, from what I have heard from the Minister of State this morning, that the Government is preparing in the context of budget 2024 to relax that expenditure rule again, at least for this year and next.
In the context of the provision of the budgetary climate and infrastructure for 2024, the Deputy will be aware that the summer economic statement will shortly be addressed by the Ministers, Deputies Donohoe and McGrath, and that will take place in July, most likely. Over the coming months, in advance of that, the Minister will further consider other budgetary positions, in collaboration with the Minister for Finance. It should be pointed out that, notwithstanding all of the issues the Deputy has raised and in the context of the difficulties that individuals, families and communities were faced with, a number of once-off measures were taken by the Government in the 2023 budget. These include a totality of resources invested over the period of 2022 and 2023 to a significant scale, including the latest package of social protection and education measures of approximately €12 billion and a cost-of-living package of measures that have been provided for 2022 and 2023 for households and businesses. The spring-summer package announced on 21 February this year will provide €1.3 billion of additional supports for businesses and others for their energy costs and help those on fixed incomes, like pensioners, social welfare recipients, carers and people with disabilities.
One particular point that the Minister of State made, and that he and his colleagues will consistently remind us of, is the once-off measures that were introduced to help families and businesses deal with the cost-of-living crisis, but the active point there is “once-off”. We know that our social welfare system is not indexed to either wage rises or increases in the cost of living. We know that, for example, social welfare payments this year fell well short of the prevailing rate of inflation and we have seen families across this country have real cuts to their living standards. In fact, the OECD has confirmed what we already know, which is that for the first time since 2013, families across this country are experiencing very severe cuts and reductions in living standards in a country that is arguably and objectively extremely rich.
The final point I would make is in regard to how the Government needs to approach the next budget and its perspective on the relaxation or otherwise of the 5% self-imposed expenditure rule. We know that interest rates are high at the moment. That will impact private investment, and when private investment in the economy experiences some kind of downturn, it is then up to the public sector and the Government to invest. That is another reason the 5% expenditure rule needs to be relaxed again this year.
It is important to point out also that the total amount of Government expenditure for the year is in excess of €91 billion, a not insignificant amount of money. Notwithstanding the difficulties that are there, I think everybody accepts from history, particularly in this country, that when governments try to chase inflation, it winds up in an inflationary spiral and everybody suffers. That is why it is so important that the once-off measures that have been taken are taken in the context of the overall budget package and will also be reassessed in the context of the summer economic statement, where the parameters for budget 2024 will be outlined. That will provide all parties in the House with an opportunity to lay out their priorities for the budget but also to make sure we do not wind up in an inflationary spiral. If we attempt to try to chase it, we know from the history of this country where that will land us, and I do not think anybody particularly wants that.
