Budget Oversight Committee: Opening Statement by Minister Donohoe - Summer Economic Statement

Check against delivery

Chair and members of the Committee, I would like to thank you for the opportunity to discuss the government’s strategy for Budget 2025, as set out in the Summer Economic Statement (SES), which we published yesterday.

Last year’s SES, and Budget 2024, was framed in the context of a cost of living crisis. Having peaked at over 9½ per cent in mid-2022, thankfully inflation rates are returning to their historical norm, with a projected rate of 2.1 per cent for this year.

Furthermore, our economy continues to perform very well with record levels of employment projected for 2025. Next year it is expected that almost 2.8 million people will be in employment compared to just over 2.3 million pre-pandemic. This is turn means the numbers in unemployment remain very low too, and are expected to do so out to the medium term.

This growth in employment has been accompanied by strong growth in the population that is well above previous estimates. The population is now approximately 180,000 people higher than anticipated back in 2021.

Taking account of these changing trends, Budget 2025 is being framed specifically around a number of key points:

1. The need to continue to improve public services and capital infrastructure to support a population that has grown faster than expectations; and

2. The need to ensure an expenditure strategy that will help sustain the strong growth in our economy that we have experienced in recent years.

And while we are in a strong position, that does not mean that challenges do not lie ahead. We are not immune to the uncertain international environment, as the recent pressures on our International Protection Accommodation Service (IPAS) and other agencies have shown. With horrific wars in Ukraine, the Middle East and Africa, our country has a part to play in accommodating those less fortunate than ourselves in line with our international obligations. These events, while taking place in distant countries, have and will continue to have an impact closer to home and we must plan for that.

That is why we included a contingency reserve in the Stability Programme Update; the level of which will be determined each year as part of the overall Estimates settlement. At this point in time it is already expected that the full amount of the contingency reserve will be required to meet commitments in 2025.

The expenditure strategy for Budget 2025, and for the medium term, seeks to provide for a prudent funding trajectory set out to meet the existing challenges on the public purse.

This year’s SES outlines an expenditure package of €6.9 billion for 2025. Of this, €3.7 billion is attributed to the costs of covering Existing Level of Service (ELS) requirements in 2025, with a further €1.4 billion required in respect of decisions already taken around capital allocations in the NDP.

The ELS requirement for 2025 reflects the unwinding of temporary cost of living measures included in REV 2024, the full year cost of the public service pay agreement of €1.2 billion for 2025, and funding in respect of demographics and the carryover impact of budgetary decisions.

A key element of the overall expenditure amount for 2025 is agreement in relation to the level of Health funding for 2025. Taking into account demands for better quality health care, the complexity of providing health services, and the legacy impact of a post pandemic and heightened inflationary environment, significant additional funding is being provided for the Department of Health. An additional €1.5 billion is to be provided for the health sector in 2024 with a further €1.2 billion to be allocated within the overall existing level of service (ELS) costs for next year.

As set out in the SES, this will bring the overall current expenditure provision for Health to almost €24.2 billion next year. This additional funding has been agreed with the Minister for Health and the HSE. All parties recognise the importance of demonstrating the link between funding and delivery of improved outcomes and have agreed that this provides an opportunity to strengthen financial planning and governance within the HSE.

Overall, in 2025 total expenditure will increase by €6.9 billion or 6.9 per cent. This will be comprised of a current resources ceiling of €90.9 billion and capital expenditure ceiling of €14.5 billion. For the first time in the history of the country, our investment in public services and infrastructure will exceed €100 billion.

This total expenditure ceiling of €105.4 billion will facilitate a budget that will:

• provide further increased levels of investment in the NDP through an increase of €1.4 billion (10.6%) over the 2024 allocation
• accommodate new measures in line with government priorities, including measures funded from the National Training Fund
• cater to demand for increasing levels of public service delivery due to a changing demographic profile, especially in population terms, providing an increase of €5.5 billion (6.4%) on current expenditure
• continue to fund measures required to respond to external shocks from the Contingency Reserve

Where the provision of capital infrastructure is concerned, my department recently commissioned the ESRI to carry out an independent review of the National Development Plan. It focused on the capacity to deliver current government priorities, sectoral needs, ongoing delivery constraints, and an approach to support prioritisation. This report informed the setting of updated NDP capital allocations out to 2026, which were agreed in March 2024.

Significant uplifts were provided to key sectors of NDP Delivery such as:

• Department of Housing and Local Government increasing from €3.87 billion in 2024 to €4.34 billion in 2026; a 12 per cent increase over two years
• Transport going from €2.7 billion to €3.4 billion from 2024 to 2026; and
• Education going from €1 billion to €1.3 billion

Within the overall amount of €14.5 billion for 2025, €4.2 billion (29 per cent) is allocated to the Department of Housing and Local Government, €2.5 billion of which is specifically for the Housing capital allocation. It is worth noting that the Housing capital programme has almost doubled since 2019.

This level of unprecedented State investment has been reflected with strong delivery performance with:

• just under 30,000 new housing units delivered in 2022; and
• 32,695 new housing units in 2023

In terms of commencements:

• 32,121 homes commenced in the first five months of 2024; a 147% increase on the same period in 2023;
• in the 12 month period June 2023 to May 2024, 51,935 units commenced, which is an increase of 86% over the previous 12 month period

The remaining €1.8 billion in the expenditure package announced yesterday will be subject to new measure announcements as part of Budget 2025. On a like for like basis, this is in line with the amounts provided for new current spending last year.

The first four budgets of this government have delivered significant increases in access to healthcare, considerable savings on childcare, a huge uplift in the number of homes and other infrastructure projects being built, and significant increases in the number of teachers, nurses and other front line public servants. All of this was done while managing the external shocks of COVID, wars, inflation and a huge growth in our population.

This necessitated adapting our budget strategy and moving the expenditure ceilings for three budgets. It also means another increase over and above that which we anticipated this time last year. However, these increases have been done in a prudent and planned manner. The unwinding of COVID expenditure, down from €15 billion in to just over €1 billion in four years is testament to that.

We avoided fuelling inflation too with our balanced approach and we are confident that this expenditure and tax package proposed for the forthcoming Budget will keep us on that path.

While 2024 has presented challenges for the economy, the forecasts and outlook are again tending towards the positive. The economy remains robust, we have maintained record numbers in employment and tax revenues continue to outperform expectations. As I have indicated already, the careful management of our economy and public finances over the past four budgets has allowed Government to:

• provide increased resources for core public services, investing in a higher quality of life in Ireland for our people into the future;
• deliver significant and essential infrastructural projects through the National Development Plan. Critical projects that support our employment prospects, economic development and regional growth; and
• provide support measures that assisted households and counter inflationary pressures and shield the most vulnerable from the worst effects of higher prices

I am satisfied that the parameters outlined today in the SES are appropriate, prudent and sustainable for the taxpayer.

I look forward to your questions now and will finish by reminding you that the final elements of any new measures and individual allocations will be made during the usual budgetary negotiations process.