The Summer Economic Statement: what you need to know

A quick explainer on what is and what’s in the statement

Minister for Finance Paschal Donohoe wants to shift the focus to what he calls the Government’s “budgetary stance”, presumably to stop the endless speculation about what the Government can or will have to spend

What is the Summer Economic Statement?

The Summer Economic Statement (SES) sets out, in broad terms, the Government's financial position ahead of the next budget - in other words how much it has in the kitty for new spending and tax measures. In past we've obsessed about the "fiscal space" - the exact amount of resources available under the EU's strict fiscal rules - but Minister for Finance Paschal Donohoe wants to shift the focus to what he calls the Government's "budgetary stance", presumably to stop the endless speculation about what the Government can or will have to spend.

The SES also gives the Government a chance to set out it financial objectives for the medium term and update its outlook for the Irish economy, or more pertinently the potential stumbling blocks for the Irish economy, which seem to be multiplying by the minute.

So what’s in the latest one?


The headline number is €3.4 billion. That’s what the Government plans to spend on new measures in October’s budget. Sounds like a lot but most of it (about €2.6 billion) is already allocated to things like the National Development Plan, public sector pay rises and the carryover costs of measures introduced in the last budget. When these are taken away, there’s just €800 million left for new measures to be announced by the Minister on budget day.

How can he justfiy spending so little when there are so many problems in health, housing and water?

Donohoe’s spending remit is tightly controlled by the EU’s strict fiscal rules, brought in after the crash to stop governments overspending. More importantly though, the Irish economy is growly so strongly (7.8 per cent last year) that if he throws more wood on the fire he risks overheating it. The Government has been warned repeatedly to keep budgetary spending to a minimum if it wants to avoid over-stimulating the economy. In the mid 2000s, the then government kept spending heavily while the economy was growing strongly, which bid up prices and wages and eroded competitiveness, and we don’t want to fall into the same trap.

Will this €800m allocation be used to cut income tax?

The Governmment has pledged to reduced the tax burden for hard-pressed middle-income earners, but it has also committed to using additional resources on a two-to-one basis in favour of spending, which leaves just €260 million for tax cuts, barely enough to widen the bands. However, Mr Donohoe gave a strong hint that he may raise taxes elsewhere to fund income tax cuts. Last year, he funded cuts in the Universal Social Charge by raising stamp duty on commercial property transactions. There is mounting speculation he may target diesel as it is a major cause of air pollution.

What else did the Minister say?

He also confirmed that part of the current windfall in corporation tax would be diverted into the so called "rainy day" fund , albeit he didn't say how much. The Government has been repeatedly warned against developing an over-reliance on the business tax, which generated a record €8 billion for the exchequer last year, but which is concentrated around a small clump of high-flying US multinationals. The Government's plans to transfer an initial tranche of €1.5 billion from the State's sovereign wealth fund, the Ireland Strategic Investment Fund (ISIF) add €500 million a year after that.

What about those stumbling blocks?

Domestically the economy is booming, growing faster than China on foot of strong domestic demand and buoyant exports. So what's not to like? There are a number of processes internationally that could derail us. First and foremost is Brexit, but the SES also pinpoints changes to the corporate tax landscape and a possible trade war between the EU and the US.

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times