Dáil Éireann Debate, Tuesday - 21 June 2022
162. Deputy Jim O'Callaghan asked the Minister for Finance the impact that the increase in interest rates will have on Government spending over the next two years; and if he will make a statement on the matter. [31826/22]
Amharc ar fhreagraIreland has benefitted over the last several years from very accommodative monetary policy. This allowed the State to borrow at historically low interest rates during the pandemic to fund the necessary fiscal response. Given the current inflationary environment, this era of monetary policy is now coming to an end: in short, interest rates are rising and it will be more expensive to borrow in the future.
Given the relatively long average maturity of Irish debt, the impact of increased interest rates will not be fully felt in the short-run. As a result, we have the opportunity to mitigate the risk by acting now to restore the public finances to a sustainable path.
Continuing to maintain elevated levels of public expenditure through borrowing will increasingly leave us exposed to future economic shocks. To address this, Government set out its medium-term budgetary strategy in the Summer Economic Statement last year. The strategy is based around an expenditure rule, whereby core expenditure growth will be kept under control through fixed ceilings linked to the trend growth rate of the economy.
Of course, this strategy was framed in a very different inflationary environment than today. This year’s Summer Economic Statement, to be published in the coming weeks, will update the parameters for discussions around Budget 2023 and will set out the budgetary stance for next year.
