Michael McGrath TD, Minister for Public Expenditure & Reform Speech to the Institute of International and European Affairs: Responding to Challenges and Looking to the Future

Check Against Delivery

At the outset let me say how pleased I am to be able to join you all this morning, albeit virtually, and how I look forward very much to being able to take part in future events in person at North Great Georges Street.

Since its inception thirty years ago the IIEA has played a leading role in providing a forum for discussion and debate on the major international issues of the day, for sharing ideas and shaping policy.

I would also like to pay tribute to your founder, Brendan Halligan whose memory, I note, is being honoured with an essay competition for third level students, a group whose college experiences have had to adjust to the restrictions brought about by the pandemic.

Facing Challenges and the Future

This morning I would like to share with you my thoughts on the last twelve months, on the challenges we have faced, on how we have responded to them – both domestically and as part of the international community – and on the challenges, but also the opportunities, we face in the coming period.

I believe yesterday’s announcements will prove to have been a very important stepping stone on the road to normality. Over 800,000 vaccine doses have been administered to date and during the second quarter of the year there will be a very significant ramping up of the programmes which will greatly assist in the opening of the country when that is appropriate. It is undoubtedly the case that better days are ahead.

The Domestic Response

In the past year, two critical issues have dominated the policy landscape.

The first is the Covid-19 pandemic and its impact on society and the economy, as well as the consequences this has had for public expenditure.

The second is Brexit, where our focus was on mitigating the risks of a no trade deal scenario and is now on deepening our relationship with the post-Brexit UK and fostering North-South relations.

However, before the pandemic arrived there were already significant domestic policy challenges facing us and these remain.

In the Programme for Government – Our Shared Future – we have set out these challenges in terms of ‘missions’, for instance:

• Universal Health Care,

• Addressing Climate Change

• Tackling homelessness and delivering affordable home ownership; and

• Building Stronger and Safer Communities.

As part of Budget 2021, core current expenditure will grow by €3.8 billion, or just over just over 6%, compared to the allocation in 2020. This increase is primarily driven by an additional €1.9 billion for the Health sector to address capacity issues and enable the Health service better meet the needs of our citizens during the pandemic and beyond.

This considerable investment in public services is complemented by a new two year Pay Agreement Building Momentum . The agreement acknowledges the contribution the public service has made in the most difficult of circumstances during the pandemic. It is fair, affordable and sustainable, and it recognises the economic challenges currently facing the country.

Outside of core expenditure commitments, there are a number of supports relating to the Covid-19 response that are reflected in Departmental Estimates. These costs amount to €6.5 billion and include €3.2 billion in Social Protection payments and €1.9 billion to support the Health service response to Covid-19.

There is also over €5 billion in Contingency funding which we have prudently set aside to meet further expenditure requirements as they arise. By the end of this year my Department estimates that we will have incurred up to €28 billion in direct Covid related expenditure over 2020 and 2021.

As a result of these measures, a general Government deficit of €19 billion, or nearly 5½ per cent of GDP is expected for 2020 – a €21 billion swing from 2019. A deficit of a similar size is expected again in 2021.

It is entirely appropriate that we have acted to support the economy in these circumstances, and this has been greatly assisted by the approach taken by the European Central Bank in its response to the pandemic. The ECB’s Pandemic Emergency Purchase Programme is a truly eye-popping €1.85 trillion and stands in sharp contrast to its initial response to the Global Financial Crisis over a decade ago. This has helped lower borrowing costs for EU countries.

As a Government we are committed to restoring the public finances to a sustainable trajectory and ensuring that Ireland does not become an outlier as we emerge from the pandemic period. In this regard the Stability Programme Update will set out economic and fiscal forecasts covering the period 2021-2025 and will be published in April.

The Summer Economic Statement, will offer the opportunity to present a more informed strategic view of the public finances. By that stage the vaccination programme will have advanced significantly, the impacts of the UK’s departure from the single market will be better understood, and the full effect of Covid-19 on the public finances will be more complete.

As Minister for Public Expenditure I recognise the critical importance of building up our national infrastructure. This year total expenditure on capital programmes will amount to a record €10.8 billion. And as set out in the Programme for Government, a review of the National Development Plan is underway. This will allow the Government to take account of the Covid-19 crisis, to reflect priorities in the Programme for Government, and to strengthen the alignment with the National Planning Framework and the link with the latest Climate Action Plan and other sectoral policies.

In addition, development of the National Economic Recovery Plan is well advanced. As it becomes possible to ease restrictions in response to an improving public health situation, the Government will outline how we will help people return to work and support sectors which have been disproportionately affected by the pandemic.

As noted in the Government’s policy on rural development, Our Rural Future , an unparalleled opportunity now exists to realise the objectives of balanced regional and rural development and maximise recovery for all parts of our country. The move to remote or connected working, underpinned by the rollout of the National Broadband Plan, has the potential to transform the way we live and work.

The EU Response

At a European level, the €750 billion Next Generation EU recovery instrument, along with the EU’s budget for the next seven years, is central to the Union’s response to the global pandemic.

The aim of Next Generation EU is to help repair the immediate economic and social damage brought about by the pandemic and to prepare for a post-Covid Europe that is greener, more digital, more resilient and fit to face the future.

Ireland is expected to receive around €900 million in grants under the EU’s Recovery and Resilience Facility in 2021 and 2022. A further set of grants is to be allocated in 2023, taking into account economic developments between now and then.

In order to access this funding, Ireland must develop a National Recovery and Resilience Plan for approval by the European Union. My Department, working together with the Department of the Taoiseach and the Department of Finance, is responsible for preparing the Plan, with input from other Departments as necessary, and for ensuring coordination across Government.

At a political level, development of the Plan is being overseen by the Cabinet Committee on Economic Recovery and Investment, while Minister Donohoe and I also met Economy Commissioner Paolo Gentiloni last week. We set out for the Commissioner our ambitions for the Recovery and Resilience Facility and our priorities for Ireland’s Plan. We will be continuing that dialogue after Easter.

I can confirm that Ireland’s Plan will have a particular focus on green and digital transition, as well as supporting economic recovery and job creation.

Like all national plans, it must also strike a balance between reforms and investments and seek to address challenges identified in the relevant Country Specific Recommendations received by Ireland in 2019 and 2020, which arise as part of the European Semester process.

Brexit

Turning now to Brexit, I am sure we all welcomed the conclusion of the EU UK Trade and Cooperation Agreement at the end of last year.

I want to pay tribute to the EU’s chief negotiator, Michel Barnier, for his achievement as well as for his constant support for Ireland.

The Trade and Cooperation Agreement, together with the Withdrawal Agreement – including the Protocol on Ireland/Northern Ireland – means that Ireland’s key Brexit objectives have been achieved.

Specifically, they protect the Good Friday Agreement and the gains of the peace process, including avoiding a hard border on the island of Ireland.

In circumstances where the UK has decided to leave the EU, it ensures the best possible outcome for trade and the economy, notably tariff and quota free trade with the UK and protection of Ireland’s place in the Single Market.

But let us not forget, there is no such thing as a good Brexit. These new arrangements are suboptimal. And the full implications of the UK’s departure from the EU remain to be seen, but clearly will be significant.

It is the Government’s view that unilateral actions on the Protocol are destabilising and must be avoided. We have always been clear that we want the Protocol to be implemented sensitively, in a way that impacts as little as possible on communities in Northern Ireland.

As regards east west trade, we need to remember that the Trade and Cooperation Agreement does not replicate the status quo. There are now checks and controls for goods moving to, from, or through Great Britain. Seamless trade no longer exists.

This is why the Government has been working to prepare for Brexit for several years. Our total Brexit related expenditure, since the UK referendum on EU membership, is now over €1 billion.

We have invested significantly in infrastructure, systems and staffing at Dublin Port, Rosslare EuroPort and Dublin Airport, to ensure that east west trade can continue.

The UK Government has announced that it will postpone the introduction of new UK import controls that had been scheduled for April 1st and July 1st. These new changes are only postponed, however, not cancelled.

Exporters must ensure that everyone in the supply chain, including the UK importer, is clear on their roles and responsibilities and can meet them. A range of Government supports are available, including training and grants, to help businesses deal with these changes.

Brexit Adjustment Reserve

The EU’s Brexit Adjustment Reserve represents an important response by the European Union to the challenges posed by the UK’s departure from the EU.

Ireland played a leading role in securing support for the Reserve at the marathon European Council meeting last July.

It is generally acknowledged that Ireland is the Member State most impacted by Brexit and so we expect to be a significant beneficiary of the Reserve.

For Ireland, relevant areas for assistance from the Reserve will include enterprise supports; supports for the agri-food sector; fisheries; reskilling and retraining; and infrastructure for the ports and airport.

Ireland’s view is that the Commission’s proposed allocations are appropriate and fair and that they are in line with the solidarity envisaged by the European Council. We hope that agreement on this proposal can be concluded quickly, so that funding can start to flow.

Cross-Border Funding

One area of cross-border cooperation I would like to highlight is the special new PEACE PLUS programme that will build on and continue the important work of successive PEACE and INTERREG Programmes.

For more than a quarter of a century these programmes have made an enormous contribution to cross-border cooperation and remain important drivers of regional development in a cross-border context.

More than that, the programmes have been a key element of the European Union’s continuing commitment to the process of peace building and reconciliation and support for the Good Friday Agreement.

But we understood that Brexit could not mean the end of this work. Indeed, Brexit made it imperative that it continue.

So we proposed what has now become PEACE PLUS.

The new Programme will address the themes of Building Peaceful and Thriving Communities; Delivering Economic Regeneration and Transformation; Empowering and Investing in Our Young People; Healthy and Inclusive Communities; and Supporting a Sustainable Future.

On 10th March the SEUPB launched a public consultation on the draft framework for the new Programme. This will run until 12th May and I would encourage anyone interested in the Programme to take part in that.

The final allocation for the Programme remains to be agreed in discussions between the EU and the UK and I look forward to that happening as soon as possible, so that the important work supported by PEACE PLUS can get underway.

As well as significant funding from PEACE PLUS, Budget 2021 announced the Shared Island Fund, with a planned €500 million to be made available out to 2025. The Fund provides significant new, multiannual capital funding for investment on a strategic basis in collaborative North South projects that will support the commitments and objectives of the Good Friday Agreement

At the Heart of Europe and Global Citizenship

As we move through the pandemic and deal with the consequences of Brexit, we must also look to the future. That is why the Programme for Government sets out a vision of Ireland at the Heart of Europe and Global Citizenship.

The lifetime of this Government will see Ireland mark fifty years of EU membership. Our membership has played an immense role in Ireland’s social, economic and political development in the intervening five decades. The values of the European Union are our values.

Within my own Department’s areas of responsibility, Ireland has been a significant beneficiary of Cohesion spending, which will be one of the primary instruments available to the Union in the years ahead, as we respond to and move beyond the pandemic.

Ireland will receive more than €1 billion in Cohesion funding over the 2021-27 programming period. This funding will be spent in areas such as supporting SMEs; reskilling and upskilling our workforce; and investing in research and development and emerging technologies, to ensure that Ireland is well placed to take advantage of opportunities arising from a green and digital Europe.

This May will see the launch of the Conference on the Future of Europe that will conclude during the French Presidency of the Council in the first half of 2022.

The Conference is intended to give citizens a greater voice and greater involvement in the future direction of the Union. It presents an important opportunity to focus on the issues facing the Union: protecting its citizens, their health and their freedoms; developing a strong and vibrant economic base to drive the recovery; promoting green and digital transition; and promoting European interests and values on the world stage

The last twelve months have thrown up many challenges for the European Union and it is important that the Union learns from those challenges.

But we also know that even in difficult times Ireland has benefitted from the solidarity that EU membership has provided.

Our membership of the European Union has been characterised by a very significant contribution by Irish people to the work of its institutions. As we approach our fiftieth anniversary, it is important that that continues. This is why my Department is working with Minister Thomas Byrne and his team on the development of a new strategy to increase the presence of Irish people in the ranks of the EU institutions. I regard this as a priority.

We also need to deepen our relationship with our nearest neighbour post-Brexit. While Brexit provides a new context, the ties between our two islands remains strong and the connections remain close. And we have a shared responsibility to protect the spirit and the letter of the Good Friday Agreement.

Strengthening bilateral relations with the US is also a key target for Ireland as set out in the Programme for Government. Our relationship with the US is built on a deep foundation of ancestral ties and decades of close political, diplomatic and economic links. The inauguration of President Joe Biden and Vice President Kamala Harris marks a new chapter in that relationship.

And I am delighted that, in the midst of the pandemic, 2021 has still seen Ireland take its place on the UN Security Council for the fourth time since we joined the United Nations in 1955. As a small country but one with a global diaspora, it is important that we contribute to the Security Council’s mandate to maintain international peace and security in an often troubled world.

Finally, I would like to reiterate that over the last decade or so Ireland has made a number of significant changes to ensure the Irish tax code is line with new and emerging international tax standards as agreed globally.

It concerns me when I see some critics continue to focus on issues that have been addressed and belong in the past. I would ask people to acknowledge the reforms we have undertaken and the positive role we continue to play at OECD and EU in addressing the tax challenges that arise from digitalisation and globalisation.

Conclusion

I will conclude on an optimistic note.

The past twelve months have been extraordinary. There have been many dark days and there will be many more before we emerge from the pandemic.

But never before in history has mankind united across the globe united in such a shared effort to respond to a shared threat. To take on the virus and beat it. And never have we been better placed to do that.

So I look forward to a time when the crisis will be in the past and the historians will conclude that we rose to the challenge, we learned the lessons and we emerged in a better place.

Thank you

ENDS