Borrowed money is not free money


Sir, – Chris Johns argues correctly that, “it’s right to worry about the long-term consequences of too much borrowing, but wrong to stop borrowing now” (“I think we are on the cusp of an economic boom”, Business Opinion, November 22nd).

Having to pay back say in 10 years’ time capital borrowed of €100 billion is better than having to pay €120 billion (capital plus interest), but that does not mean that the capital is “free”.

We must avoid the delusion of the 1980s that greatly increased borrowing was acceptable because the markets were still willing to fund such borrowing.

Fortunately, we have much better expenditure controls in place today, with the establishment of the Irish Fiscal Advisory Council in 2011, the Irish Government Economic and Evaluation Service (IGEES) in 2012, and the Parliamentary Budget Office in 2017.

Under very benign circumstances it might be possible to fund the borrowing without increased taxation and/or a reduction in public expenditure.

It is much more likely that one or both outcomes will ensue in the years ahead, given that Covid had led not only to a huge increase in borrowing but also long-term increases in certain areas of public expenditure.

The Minister for Public Expenditure and Reform has recently drawn attention to this possibility and rightly so.

It will be time soon to widen this debate to prepare for the inevitable “blame game” of who is to pay for the necessary huge increases in state expenditure arising from Covid. And to communicate to politicians and the wider public that borrowed money is not “free” money. – Yours, etc,


Emeritus Professor

of Economics ,

Trinity College Dublin)

Sandycove, Co Dublin.