Irish debt will hit nearly a quarter trillion by year end, warns Donohoe

Industry Correspondent

Ireland’s public debt will amount to nearly a quarter of a trillion euros by the end of the year, said Finance Minister Paschal Donohoe.

Addressing the National Economic Dialogue – which involves senior government officials, employers, labor unions and social campaign groups – he said the government must end its expansionary fiscal policy as the economy emerges from recession. pandemic.

Separately, the Taoiseach Micheál Martin said at the same event that state spending over the past year or so due to the pandemic – of around € 38 billion – was “unsustainable”.

Mr Martin said “we must now move on to the next phase, in which the limited resources the government can deploy are targeted to those who need them most and used in a way that best supports the recovery and our future prosperity.” .

“While we are ambitious in our plans and in what we want to achieve, we must be mature enough as a society to recognize that there are tradeoffs, that not everything can be achieved overnight, and that for so many challenges we face, there are no easy and quick answers or solutions.

Public Expenditure Minister Michael McGrath said “the bottom line is that we need to manage our finances wisely as we come out of Covid to avoid major problems down the line.”

“Failure to unwind Covid spending once Covid is behind us means it has to be funded by higher taxes or larger deficits for longer, with the associated risks this poses to our finances an once the intervention of the European Central Bank in the markets wanes and the fiscal rules are fully restored.

Mr McGrath separately warned on Monday evening that there was more reason to expect supportive policies from the European Commission and the European Central Bank – which eased additional government spending during the crisis of Covid-19 – would change rather than stay the same. In a report on how the financial emergency legislation works, he said “domestic politics must be aware of this”.

Mr McGrath also said that the actual decline in corporate tax revenue to the public treasury in the coming years could be “far greater” than the € 2 billion cut expected by 2025 on the basis international efforts to reform this area.

Le Taoiseach said the government’s summer economic statement would indicate how to achieve a “broadly balanced budget as jobs pick up.”

“It will mean making choices about how and what we deliver, choosing what to focus on, making sure we take a sustainable and responsible approach to our public finances – so that we again have the space to respond if challenges recur, as they surely will – and manage within the real stresses we face.

Mr Donohoe said the macroeconomic context in which the next budget would be developed was one “in which the economic recovery [in Ireland] is gaining momentum ”.

“Change of circumstances”

He said it was important for fiscal policy to evolve to reflect changing circumstances. “Simply put, we cannot continue to pursue a strongly expansionary fiscal policy while growth accelerates. “

“To do this, it would involve moving from pursuing a counter-cyclical policy during the crisis to a massively pro-cyclical position during the recovery, which would compromise the sustainability of our public finances. “

Mr Donohoe said he believed the economic recovery was in its early stages, but warned the recovery would be diverse in its impact.

“Some sectors are already returning to pre-pandemic activity levels, while others will need to change and adapt to reflect a post-pandemic environment. Government policy must reflect this reality.

Mr Donohoe said the decline in activity after the reimposition of public health restrictions in the first quarter of this year was not as severe as that seen during the first lockdown in spring 2020.

“Modified domestic demand (MDD), which provides the best measure of domestic economic activity, fell 5% on an annual basis in the first quarter of 2021, compared to a drop of 15½% in the second quarter of last year. . . “

“This is clear proof that in the face of some of the toughest restrictions in advanced economies, businesses and consumers alike have changed their behavior.”

The minister said there was evidence of price pressures, nationally and internationally, and these should be carefully monitored.

“However, at the moment, my department’s main expectation is that these pressures are transient.”

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