Opening Statement by Tánaiste and Minister for Finance Simon Harris T.D., at the Meeting of the Budgetary Oversight Committee Annual Progress Report 2026

Introduction

Chair, members of the Committee, let me begin by thanking you for the opportunity to be here today to discuss the Annual Progress Report 2026.

The Annual Progress Report is an important milestone in Ireland’s annual economic and fiscal cycle and is a key element of our engagement with the revised European fiscal framework.

It sets out my Department’s latest assessment of the economic situation and outlook, and reports on progress under Ireland’s Medium-Term Structural and Fiscal Plan.

Economic Backdrop

Before turning to the outlook, I would first like to say a few words about the wider economic landscape.

As members of this committee are well aware, the global economy is facing its second major energy price shock in less than five years.

The disruption to global energy markets precipitated by the conflict in the Middle East has significantly altered the short-term outlook for inflation.

Indeed, we have already seen the impact of recent developments on energy prices, and I am very conscious of the pressures this has placed on households and businesses across the country.

That is why we have put in place over €750 million in targeted measures to reduce energy costs, protect vulnerable households, and support sectors that are critical to ensuring growth in domestic activity.

Importantly, these measures are helping to mitigate the increase in inflation. My Department’s best estimate is that our targeted interventions are reducing the annual rate of inflation by around ½ percentage point than what otherwise would have been the case.

These measures are deliberately time-bound and targeted because our approach must be both responsive and responsible.

And while it's not possible to predict precisely how events will unfold, what Government will continue to do is act in a measured and responsible way, protecting the most vulnerable and supporting economic stability.

Irish Economy and Outlook

Turning now to developments in the domestic economy.

Despite external challenges, the Irish economy has remained resilient.

Indeed, Modified Domestic Demand – a good proxy of underlying domestic economic activity – recorded strong growth again last year.

However, this data is, of course, backward looking and we cannot take the progress we have made for granted.

Indeed, risks remain firmly tilted to the downside and the outlook continues to be shaped by developments beyond our control.

Short-term economic outlook

Given these risks, the endorsed projections contained in the APR should be interpreted as a reference forecast – or a benchmark against which incoming data can be assessed.

The report also includes two alternative scenarios examining how the outlook could evolve under less favourable energy price developments.

The central message is that the economy is expected to grow in all scenarios, but at a more moderate pace than we have seen in recent years and with higher inflation.

Under the reference forecast, inflation is projected to average 3.3 per cent this year, with MDD projected to grow by just over 2 per cent.

Under an adverse scenario, involving a more prolonged period of elevated energy prices, inflation could average around 3¾ per cent this year.

In a severe scenario, however, inflation could average around 4½ per cent this year, with year-end inflation significantly higher. This would of course have knock-on effects on both economic growth and employment.

Fiscal Developments

Before I conclude, let me say a few words about the fiscal outlook.

For the year as a whole, my Department is projecting a general government surplus of €9.2 billion. This provides our country with options, and security in an uncertain time. It allows for investment in the Future Ireland Fund and the Infrastructure, Climate and Nature Fund.

The surplus is, of course, welcome. It reflects the fundamental resilience of our economy and of our proven record of sound financial management.

However, when we look at the figures in more detail there are some warning signs we must be conscious of.

My Department recently published the Exchequer returns for April. They show that the Exchequer recorded a deficit of €4.7 billion. Some of this is due to the transfers to the two Funds, but even if these had not taken place we would still be running a deficit. This underscores the importance of taking a cautious approach to our public finances.

In this context, this Government’s approach has been to ‘keep our powder dry’: by running budget surpluses we have had the capacity to respond swiftly and flexibly, to help households and businesses with the energy price shock.

Chair, the Budget 2027 process is well underway. As we consider the decisions we will make in the Budget, and in an environment of such extreme uncertainty, it is vital that we continue with a balanced and careful approach to overall fiscal policy. That is the best way – indeed, the only way – to ensure we have the resources on hand to respond as needed to future challenges.

Next month, Government will host the National Economic Dialogue in Dublin Castle, bringing together stakeholders from across our society to discuss the priorities for the Budget and how we can work together to build a secure future.

Minister Chambers and I will then set out the Budget 2027 package in the Summer Economic Statement in July.

Conclusion

To conclude, while the international environment is highly uncertain it is important to be clear about where Ireland stands today.

We are entering this period from a position of strength. Our labour market is operating at full employment, domestic demand has continued to expand, and the public finances remain in a relatively healthy position.

While risks to the outlook are significantly tilted to the downside, this Government will continue to respond in a way that is decisive and responsible, and in a way that supports the long-term resilience of our economy.

Alongside our cost-of-living interventions, we are making significant investments in renewable energy, in grid infrastructure, and rolling out supports to improve the energy efficiency of our homes and our workplaces.

That is because the most effective way to protect households and businesses from future energy price shocks is to reduce our exposure to them in the first place.

I look forward to a constructive exchange of views on the economic and fiscal outlook but before that, I will give the floor to my colleague, Minister Chambers.

Thank you.