Dáil Éireann Debate, Tuesday - 29 September 2020
32. Deputy Richard Bruton asked the Minister for Finance if he has assessed the advice of the Irish Fiscal Advisory Council on the shape of the future budget; and if he will make a statement on the matter. [26405/20]
Amharc ar fhreagra35. Deputy Richard Bruton asked the Minister for Finance if he has assessed the advice of the Irish Fiscal Advisory Council on the shape of the future budget; and if he will make a statement on the matter. [26522/20]
Amharc ar fhreagra36. Deputy Ged Nash asked the Minister for Finance to outline his views on the pre-budget statement from an organisation (details supplied); his views on the need for a multi-year stimulus; and if he will make a statement on the matter. [26797/20]
Amharc ar fhreagraI wish to recognise the foresight of the Minister of Finance in drawing up the budget last year as he left scope for many measures that are now helping to protect the economy. The Irish Fiscal Advisory Council has indicated that it believes substantial additional stimulus should be undertaken in 2021. I am keen to explore what this substantial additional stimulus will look like.
I propose to take Questions Nos. 32, 35 and 36 together.
The Irish Fiscal Advisory Council published its annual pre-budget statement on Wednesday, 16 September. As ever, this is valuable analysis and I welcome the council's contribution at an early stage of the budget process. It is also worth pointing out that around the same time, the Governor of the Central Bank wrote to me expressing broadly similar views to the council. The council noted that the macroeconomic outlook is exceptionally uncertain, with key risks relating to future waves of Covid-19 as well as the potential for bilateral trade between Ireland and the UK to be on World Trade Organization terms from next year. I agree with this assessment. Infection rates have increased further and additional measures have been put in place for some counties. Additionally, the Government has decided to base budget 2021 on the assumption of a disorderly end to the so-called transition period, given the high probability of it materialising. It is worth pointing out that the council is supportive of the unprecedented budgetary response that has been implemented by the Government in response to this terrible disease.
The council's view with regard to budget 2021 is that it should include a substantial multi-year stimulus so that targeted support measures are continued. Given the uncertainty remaining around Covid-19 and the future trading relationship between the EU and UK, the council further recommends an appropriately sized contingency to help to manage these key risks. Additionally, the council's view is that once recovery is established the public finances be brought back to a more sustainable trajectory. I broadly concur with these views.
Budget 2021 will prioritise a continued response to this crisis. The overall strategy will be to provide further countercyclical support to the economy. We will prioritise preserving and maintaining existing levels of service, make improvements where we can and where needed and target any additional supports to those sectors and workers who are most in need. I am also conscious of the need to put the public finances on a sustainable path. The Government will, in the first half of next year, set out a medium-term trajectory to restore balance to the public finances.
What is striking about the Irish Fiscal Advisory Council's advice is that it recognises the short-term extreme disruption the economy will go through and acknowledges that a new normal must arise. Something like a new deal needs to be developed in Ireland at this stage. Will there be a substantially larger public investment programme? It is important that we start to take the opportunity of a decline in private investment to accelerate. Can we get projects moving quickly enough to take up that opportunity?
I am also interested to hear the Minister's comments on some of the specific supports through activating and restructuring sectors, which need to take into account matters such as the challenge of climate change. Can we design instruments that will accelerate structural change in order that we can be ready for this new normal?
On the scale of the stimulus and the role of capital spending, the Minister for Public Expenditure and Reform, Deputy Michael McGrath, has committed to €9 billion of investment in capital projects next year. To put that in context, the figure at the start of the previous Dáil was between €3 billion and €4 billion. It is a huge increase on recent years. Unlike in other years when, due to our inability to fund public services, capital investment had to be cut back, the Minister, Deputy McGrath, earlier this year committed to maintaining capital investment at approximately €1 billion higher than it otherwise would have been, which is now a €9 billion figure. As for it going beyond that, the Minister, Deputy McGrath, is now looking at that as part of his engagement with all the spending Departments.
On the Deputy's point about retraining, we will be closely monitoring the take-up and use of all the different training posts and further education roles announced as part of the July jobs plan. I expect them to play a big part in our efforts for 2021 and beyond.
I am conscious there is significant opportunity and need for structural change in respect of climate action in many sectors of our economy, including the public sector. It would be very timely to commit not only to higher levels of investment but to accelerating that change and developing tools that will lead enterprise to accelerate those needed investments and to position itself for the new normal that will emerge. There is a need to look creatively at how investment can be accelerated and at how necessary change in the economy can be leveraged for the long term.
There is widespread relief this afternoon at the figures contained in the Department's outlook published today. In April, it was predicted that GDP would crash by 10.5%, whereas the figures published today suggest instead that it will shrink by 2.5% only, a significant figure but one we can accommodate. Worryingly, unemployment will be 2% higher than forecast at the peak of the first wave of the pandemic. With the prospect of a no-deal Brexit coming into view, as we all know, unprecedented action is very much needed.
IFAC signed off on the Department's numbers today, endorsing them. Clearly the Minister agrees with the council's earlier analysis that we will require a multi-annual stimulus approach to support our economy into the future. Does he agree that support should involve an investment of €10 billion, the quantum allocated to the investment that IFAC identified, and that it would be appropriately sized relative to what it advised?
There are two points on that. I would be careful, as the Deputy acknowledged, about deriving a great deal of comfort from what has happened to national income growth because so much of the improved performance in national income has been driven by what has happened to our exports in a particular part of our economy. The reality of where we are is contained in the Deputy's point about what has happened to unemployment this year, which has, unfortunately, been in line with our fears of what could happen. While it is welcome that there has been a sharp decline in the number of those receiving the pandemic unemployment payment, it is still the case that there are far more people on it than we would ever want.
We will have to make a decision on budget day about the scale of the stimulus. As I indicated to Deputy Bruton, the figure is already at €9 billion. The only note of caution I would sound is that while we can commit to the principle of stimulus over a number of years, being able to forecast the level of stimulus that will be needed in 2022, for example, given the high degree of uncertainty surrounding us at the moment, would be a very demanding task. That is a decision that may be taken at another point.
