Opening statement by Minister Paschal Donohoe at the Budgetary Oversight Committee

Opening Statement

Paschal Donohoe, Minister for Public Expenditure, National Development Plan Delivery and Reform

Budgetary Oversight Committee: Stability Programme Update

8 May 2024

Check against delivery

I would like to thank the Chair and the members of the Committee for the opportunity to meet with you today and discuss the 2024 Stability Programme Update.

As the Committee knows, the Stability Programme Update is an important point in the annual budgetary cycle. From an expenditure point of view, it allows us to take stock of the significant and continued investment in our day-to-day public services and infrastructure. It also outlines, on a no policy change basis, the path for public expenditure over the medium term. It sets out a strong fiscal position as Minister McGrath and I begin preparations for the Summer Economic Statement and Budget 2025.

As the Minister for Finance has already outlined, the economic forecasts in the SPU illustrates the continued strength of our economy in terms of output and growth, with the labour market continuing to operate at, or close to, full employment. Such stable economic performance means we can operate our expenditure policy in a planned manner that continues to improve services, supports and infrastructure for our growing population.

Notwithstanding this strong performance, there are still challenges to be addressed. The pressing need for more homes continues too, despite record delivery in this area, as does a desire for continued improvements in public services.

There are sustained external pressures on the public services too, including from the ongoing war in Ukraine and our commitment to provide the necessary humanitarian support for people fleeing the war. The expenditure pathway set out in the SPU seeks to take account of such pressures by the inclusion of a contingency reserve over the period 2025 to 2027.

As I noted here before, the careful management of our economy and public finances over the past few years has allowed Government to do four main things:

• firstly, provide increased resources for core public services and for permanent increases in social supports, investing in quality of life and supporting living standards while at the same time meeting the challenges of COVID and the war in Ukraine
• secondly, deliver significant and essential infrastructural projects through our National Development Plan. Over the period 2024 to 2026 Government has also utilised €2.25 billion in windfall receipts to help in NDP delivery
• thirdly, we put in place considerable temporary supports to provide assistance to our people and businesses to respond to elevated inflation levels experienced from 2022 right through to last Winter; and
• finally, these improvements in services, supports and infrastructure are being delivered whilst ensuring our public finances remain in a sustainable position

For 2024, overall spending this year will reach €97.1 billion. This includes core funding to support the delivery of a wide range of public services and enhanced infrastructure including in health, education, housing and childcare alongside supports to meet challenges driven by the pandemic and the war in Ukraine.

The National Development Plan is the largest, greenest and most ambitious infrastructure plan ever for Ireland. Over the lifetime of this NDP to 2030, we will invest over €167 billion in new and upgraded infrastructure to meet the needs of a fast growing population and our climate and digital infrastructure objectives.

In 2023 expenditure on the NDP was €12½ billion; a significant increase over 2022, with almost a third of this extra funding going to the Department of Housing. The result of this was overall number of houses delivered surpassed the Housing for All target, with 32,695 new homes completed in 2023. This shows that despite the significant challenges of increased construction costs and higher interest rates the continued investment in our housing sector and the supports being provided are ensuring that output continues to grow.

In 2024 capital investment will be over €13 billion, rising to €15.5 billion in 2026. To contextualise this level of investment, capital investment was at €4.6 billion in 2017.

The Fiscal Monitor released last Friday shows that gross total expenditure to the end of April is up by 12.1% year on year with capital spending up by over 53%. This reflects the investment set out in Budget 2024, including enhanced social protection payments, increased staffing in key areas such as health and education to deliver frontline services and the additional Social Protection payment made in January this year.

Compared to the expenditure profile, overall spending is ahead by 1.5% or €436 million. Current expenditure is driving this at €543 million (2.0%) ahead of profile, while capital is below by €107 million (4.0%). The Committee will be aware that the government continues to face expenditure pressures in a number of areas that require careful and concerted management over the rest of year.

2023 saw a General Government Balance of €8.3 billion, with a forecast of €8.6 billion this year and rising to €10.7 billion in 2027. Strong economic fundamentals have enabled the government to set out in the SPU an investment of almost €27 billion in the Future Ireland Fund and the Climate and Nature Fund over the period to 2027. Such future proofing of the finances is only possible due to the sustainable management of our Budgetary Policy in recent years.

Expenditure projections in the Stability Programme Update are included on a technical, no policy change basis. The figures this year take account of the recent Public Service Pay Agreement and the voted expenditure amounts reflect the 5% growth rate anchor for core spending as set out under our Medium Term Expenditure Strategy in the 2021 Summer Economic Statement. This strategy is based on aligning voted expenditure with the trend growth rate of our economy.

In recent budgets flexibility was required in the strategy, in particular to take account of higher than anticipated inflation, and such flexibility was reflected in our decision to increase the growth rate of public expenditure.

Since 2020 non-core expenditure, expenditure that is temporary in nature, has facilitated our response to the impact of a range of external pressures. We started with Brexit, then the pandemic, the outbreak of war in Ukraine followed swiftly by increased levels of price inflation. Separating out core and non-core expenditure had enabled funding to be provided for specific and temporary purposes capable of being withdrawn when no longer required.

With inflation retreating faster than expected and the pandemic hopefully in the past too, the careful phased withdrawal of these supports is underway. This unwinding is essential to ensure sustainability of the public finances. In the case of COVID-related expenditure, total outlay has fallen from €15.4 billion in 2020 to an estimated €1.3 billion for this year.

While a significant part of the non-core expenditure category has been unwound, however, risks remain that have to be managed as best we can. For this reason, we have included a contingency reserve within the overall expenditure ceiling for 2025 to 2027 of €4.5 billion. This will support the continuation of funding accommodation and social supports for arrivals from Ukraine.

The careful management of our public finances, while responding to many unforeseen external challenges, has helped our economy remain resilient. We now continue to plan and deliver for the future, with increased investment and delivery through the NDP, while improving the quality of life of our people through increased funding and output from our public services. Over the coming months I, with my colleague the Minister McGrath, will consider how we can best use the upcoming Budget to support this work as we look to the Summer Economic Statement.

I would like to thank the Committee again for this opportunity to address you this evening and I look forward to answering any questions members may have.