The Government is set to allocate significantly increased capital funding for housing, but has committed itself to difficult deficit-reduction targets in the coming years with the publication of the summer economic statement (SES) on Wednesday night.
The deficit-reduction targets are likely to lead to a tough budget process in the autumn as Ministers face the reduction of Covid-19 spending in their budgets.
While the document shows a “core budget package” of €4.7 billion for the October budget, just €1.5 billion of this will be set aside for new measures.
These will include both a package of tax reductions and social welfare increases, and also pre-committed increases in spending such as public sector pay increases. However, the Government has also committed to reducing overall expenditure, as Covid spending is reduced.
Senior Government sources admitted that the fixing of expenditure ceilings will involve a series of difficult budgetary decisions.
In addition, while providing for new spending, particularly on capital projects, the statement commits the Government to eliminate borrowing for current spending by 2023, meaning that significant deficit reduction will begin next year. “Resources will be finite and choices will have to be made,” the document states.
Pandemic contingency
While a deficit of 3.4 per cent is targeted for next year, this will fall to 1.8 per cent in 2023 and to 1.5 per cent by the end of the Government’s term in 2025.
However, the Government says it will revise these targets if the pandemic does not continue to recede as expected. In addition, €2.8 billion will be set aside as contingency funding for income and business supports, to be used in the event of a resurgence of the pandemic.
The SES, which is one of the most important economic documents published by the Government over the year, was delayed earlier this week amid divisions at the top of Government over economic policy.
However, agreement was reached between Minister for Finance Paschal Donohoe and other senior Ministers, including Taoiseach Micheál Martin and Minister for Public Expenditure Michael McGrath, on Wednesday afternoon and a special Cabinet meeting subsequently approved the document.
Fianna Fáil – which holds the housing brief in Government through Minister for Housing Darragh O'Brien – has been pushing for a major jump in capital funding to finance a wave of public housebuilding, which will form the centrepiece of a new housing policy, "Housing for All", which is due to be launched next week. Mr O'Brien was backed by the Taoiseach , it is understood.
Binding commitments
However, Mr Donohoe has been warning of the need to set a budgetary framework for the Government for the coming years, and was unwilling to commit to a big housing package without an agreement to reduce the current deficit in the coming years. Sources familiar with the discussions said that Mr Donohoe insisted on the need for binding commitments on deficit reduction – a move that will herald difficult budget discussions in the autumn.
Deficit reduction will see Ministers face reductions in Covid spending in their budgets and an end to the loose fiscal policy which has seen public borrowing rocket since the start of the pandemic.
In a statement, Mr Donohoe said the SES sets out “a credible medium-term strategy for returning the public finances to a sustainable position, while maintaining temporary supports to households and businesses”.
Mr McGrath said the growth in core expenditure in the period until 2025 – set at just over 5 per cent – was “prudent, sustainable and consistent with our plan to reduce the deficit in an orderly manner”.
