I thank the Chairman. I will start with a brief statement
The Covid-19 pandemic has had a profound impact on our society and economy. To respond to this crisis, the Government has agreed over the past few months a series of expenditure measures to support our health service in expanding its capacity, to provide income support to workers who have lost their jobs over this period, and to support firms to maintain employment and the vital link with their employees through the wage subsidy scheme. The evolving nature of the public health situation has required that Government act quickly to address the challenges facing our citizens.
From an economic perspective the labour market has borne the brunt of the impact. In the early part of the year, we were in a position of almost full employment. At the end of May, the Covid-19 adjusted monthly unemployment measure produced by the CSO showed the unemployment rate at 26%. In these circumstances, the Government has taken significant steps to cushion, where possible, the impact on households and firms. These supports seek to minimise the potential long-term effects of the crisis on our economy. By supporting the connection between workers and employers and providing targeted supports to business, the objective of policy has been to facilitate business restarts as public health restrictions are eased.
The SPU, published in April of this year, outlined projected overall gross voted expenditure of €78.4 billion for 2020, including an additional €8 billion across a variety of areas. Taking into account the social protection Estimate agreed by Dáil Éireann last month, and Government decisions since the SPU was published, in particular the extension of the PUP and the TWSS, the additional expenditure, relative to last December’s Revised Estimates is now estimated at approximately €11.5 billion, which is that amount higher than that forecast last December. These projected increases are subject to considerable uncertainty given the evolving employment situation as businesses restart. These additional expenditures will bring gross voted expenditure for 2020 to €82 billion, an increase of more than 20% relative to last year, which is probably the largest increase in nominal spending that we have ever had.
The forecasts in the stability programme outlined a general government deficit of €23 billion or almost 7.5% of GDP for this year. This reflects the expenditure measures introduced as well as the effects of the automatic stabilisers as revenues fall and unemployment spending increases. However, there is a high level of uncertainty as to the outcome for this year. A delayed recovery in the economy, for example, could result in a deficit of up to €30 billion this year.
The State will borrow to cover this deficit this year and for as long as is required. We can afford to borrow cheaply on this scale in support of our economy and our people because of the actions of the ECB and the credibility of our approach to the public finances.
In response to this crisis, the Government moved swiftly to introduce a range of measures. During this period, the normal procedures for advance sanctioning of expenditure by the Minister for Public Expenditure and Reform via the Department remained in place. Under these arrangements, sanction requests for funding to support rapid actions were analysed, assessed and responded to in an efficient and streamlined manner to expedite necessary expenditures agreed by Government. Specific streamlined arrangements were put in place between the Department of Public Expenditure and Reform and the Department of Health, and involved regular reporting on Covid-19-related health expenditure. This is important as clear, rapid, targeted and properly resourced public health measures have been, and remain, a crucial element of the response to this pandemic.
To date, more than €1.8 billion in additional funding has been agreed by the Government for the Department of Health. This funding has supported the scaling up of acute and community services, including expanding physical capacity and the purchase of equipment such as ventilators and PPE. This funding is also being used to provide support to private and public nursing homes, and secured 100% of private hospital capacity during the peak of the crisis.
Outside of the health area, economic measures included the wage subsidy scheme and the PUP, various liquidity measures, direct grants for impacted small and microenterprises though the restart grant scheme and the trading online voucher scheme, deferral and warehousing of tax liabilities for a 12-month period through the Revenue Commissioners, and a targeted commercial rates waiver for a three-month period through the local authorities. The Government has indicated that further supports will be required for small businesses to aid the economic recovery.
As the Revised Estimates for 2020, which set out the allocations for the year, were not voted on prior to the dissolution of the previous Dáil, Departments are currently operating under the ‘four-fifths’ rule that applies under the Central Fund (Permanent Provisions) Act 1965.
As we are pressed for time, I will skip ahead and make a few final comments. On fiscal sustainability, underpinning the strategy to be adopted in the recovery phase, the management of voted expenditure needs to continue to be conducted in a manner that meets the Government’s targets for fiscal sustainability and continued improvement in public service outcomes. The State is well placed to borrow to fund the deficit arising from the crisis. This is against a backdrop of currently favourable financing conditions and the backstopping role of the ECB.
The cost of borrowing money is cheap but this must be seen in the context of an expanding volume of public debt. With gross public debt projected to head toward €250 billion, an average interest rate of less than 2%, which is the current position, generates an annual debt generate interest bill in the range of €4 to €5 billion. An average rate of 3% could see that annual bill go to €7.5 billion, while an average rate of 4% could generate a bill of €10 billion. It needs to be considered, therefore, that over the medium to long term - not this year or next year - Ireland will issue and refinance this debt against a less favourable background. As we move into the recovery phase, in the future a robust fiscal anchor will be required to ensure sustainable growth in Exchequer spending.
The substantial emergency measures introduced in the early stages of this crisis have had a significant expenditure impact. They played a crucial role in supporting households and enterprises and the scale and magnitude of these supports was essential. As we move forward, that context is changing for reopening the economy. Now our focus needs to be on supporting the economy to transition out of the crisis phase and into recovery. This means prioritising measures that will stimulate activity and employment. This will not be an easy task, as the broader context in which these decisions must be made remains challenging. In addition to the significant uncertainty that exists around the medium to long-term impacts of the virus, the uncertainty that is now present in the global economy presents a particular challenge given the openness of our economy. These challenges highlight the importance of maintaining fiscal accountability and of framing our policies within the broader fiscal considerations. At the beginning of this year, the public finances were in a strong position. In considering our expenditure strategy for the future, our aim must be to move back towards that position over time as the economy recovers.