The Irish Times view on Ireland’s economic policy: politically fraught but vital questions must be answered

The Government needs to clarify what it sees as the appropriate level of spending as the country exits the pandemic

Minister for Finance Paschal Donohoe is due in the coming weeks to publish a Summer Economic Statement, which is to include some targets for the deficit and the public finances. Photograph: Olivier Matthys/ Pool/ EPA

Minister for Finance Paschal Donohoe is due in the coming weeks to publish a Summer Economic Statement, which is to include some targets for the deficit and the public finances. Photograph: Olivier Matthys/ Pool/ EPA

 

Senior Government Ministers underlined at the National Economic Dialogue (NED) this week the need to restore the public finances to a sustainable path over the coming years. The decision to delay reopening parts of the economy will not help, of course, though it remains to be seen whether this is a short-term hiatus or something more serious. Either way the pressures of pandemic spending have pushed total expenditure this year to around €90 billion; had there been no pandemic it might have been around €75 billion.

We saw on Tuesday the practical difficulties of maintaining the path to reopening. And this only increases the challenge of managing the running down of emergency spending in the months ahead. One of the key jobs is to replace the general financial supports – of which the largest are the Pandemic Unemployment Payment (PUP) and the wage subsidy scheme – with spending focused on the hardest hit sectors. This is technically complex and politically fraught.

The wider point is the need for more clarity on the appropriate level of spending as Ireland exits the pandemic. Phasing out the temporary Covid-19 spending would leave some leeway for the Government as it faces significant spending pressures in the years ahead. Many Ministers are likely to fight to retain their pandemic allocations, arguing that the money can be reallocated.

While Taoiseach Micheál Martin and the Ministers for Finance and Public Expenditure told the NED that trade-offs and prioritisation lie ahead, there is little sign yet of this influencing the political debate. The Irish Fiscal Advisory Council (IFAC) has repeatedly cautioned that existing spending plans have already eaten up any room for manoeuvre from a rebound in growth. Massive spending was the correct response to the pandemic, but Ireland cannot continue to borrow the guts of €20 billion every year.

A vital few weeks lie ahead. Minister for Finance Paschal Donohoe is due to publish a Summer Economic Statement, which is to include some targets for the deficit and the public finances. It will be interesting to see how this is framed. In turn, it will help to set the context as the budget for 2021 approaches in October.

There are important decisions needed on the appropriate path for the public finances. Work by the Department of Finance and IFAC has indicated that on reasonable assumptions, there should be no need to return to a period of austerity spending cuts and tax hikes. Equally, the Government has set out a lot of spending plans and faces pressures from an ageing population and decisions have to be made on how to pay for these, via spending savings elsewhere or new revenues. The Summer Economic Statement needs to set out a framework for these decisions and a basis to plan for the future.

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