Ministers McGrath and Donohoe publish Stability Programme Update 2024
From Department of Finance; Department of Public Expenditure, NDP Delivery and Reform
Published on
Last updated on
From Department of Finance; Department of Public Expenditure, NDP Delivery and Reform
Published on
Last updated on
The Minister for Finance, Michael McGrath TD, and the Minister for Public Expenditure, National Development Plan Delivery and Reform, Paschal Donohoe TD today (23rd April) published the Government’s Stability Programme Update for 2024.
Commenting on the figures, Minister McGrath said:
“Available evidence suggests the economy is in reasonably good shape, at least in aggregate terms. Looking ahead, some of the headwinds that have dominated over the past year are set to ease as the year progresses and this should support a pick-up in economic activity.
The brightest economic spot is undoubtedly the labour market, which has remained resilient throughout the period of high inflation and rising interest rates. There are now over 2.7 million people in employment. To put this in context, three-quarters of our working age population are in work, a near record level.
Crucially, the energy price shock is dissipating and the disinflation process is now well advanced, with headline inflation expected to average just over 2 per cent this year – consistent with price stability. Against this backdrop, consumer spending is expected to pick-up over the course of the year as lower energy prices and the associated easing in inflation support an improvement in real wages and household purchasing power.
MDD growth is expected to average 1.9 per cent for this year as a whole - a modest downward revision of 0.3 percentage points from the autumn forecast. As economic conditions improve over the course of this year, MDD growth is set to accelerate to 2.3 per cent next year.”
On the public finances, Minister McGrath said:
“On the fiscal side, we are projecting a headline surplus of €8.6 billion for this year, the equivalent of 2.8 per cent of national income. This is based on the assumption of tax revenue amounting to almost €92.1 billion, a growth rate of 4.6 per cent. However, I would caution that this surplus is heavily dependent on volatile ‘windfall’ corporate tax receipts which have grown from €4 billion to €24 billion in the space of a decade. When the windfall element of these receipts – estimated at around €11 billion, or almost half the projected corporation tax yield this year – is excluded, there is an underlying deficit in our public finances.
These receipts cannot be relied upon: we saw a marked slowdown in corporation tax over the course of last year, highlighting the volatility of this revenue stream. We can say with reasonable confidence at this point that the era of corporation tax over-performance is coming to an end.
That is why this Government has decided to establish the two new long-term investment vehicles – the Future Ireland Fund and the Infrastructure, Climate and Nature Fund. The objective is to invest windfall receipts to help prepare for future known fiscal challenges. The legislation establishing the Funds is currently progressing through the Oireachtas.
The SPU projections published today reflect the resilience of our economy and Government’s commitment to continuing to invest in our public services and the productive capacity of our economy. However, it continues to be important that we highlight the vulnerabilities that remain just below the surface: it is essential that fiscal policy is framed in a manner that is careful, balanced and sustainable.
The publication of the SPU today is an important milestone in the process of preparing Budget 2025. I now look forward to the National Economic Dialogue next month and then to the preparation of the Summer Economic Statement (SES) before the summer recess. The SES will involve making important decisions concerning the parameters of Budget 2025."
Commenting on the publication, Minister Donohoe said:
“Today’s publication marks an important point in our budgetary calendar. It allows us to take stock of the economic environment and reflect on our ongoing investment path in public services and infrastructure in advance of setting our budgetary framework for 2025 in the Summer Economic Statement.
This gives us the opportunity to maintain our solid investment path in public services and infrastructure as set out in the revised capital allocations out to 2026 agreed by Government last month.
The various supports put in place by Government in previous budgets enabled the economy and society to remain resilient in the face of a number of challenges. The delivery of the cost of living packages across society was done in a fiscally sustainable manner by separating the temporary supports from our core expenditures. For this year there is a provision of over €0.6 billion for the additional Social Protection payments made in January and for the Increased Cost of Business Scheme for enterprises affected by increased energy costs.
The amount of non-core expenditure is €4.5 billion this year. This is provided primarily to meet the external challenges of Covid and the war in Ukraine, with the major part of this spend driven by the humanitarian response to support people fleeing the war. The amount provided in relation to Covid related spending this year is just over €1¼ billion. This stood at €15.4 billion in 2020. With non-core spending having been managed down, for the periods 2025 to 2027 we are including within the SPU a contingency reserve at the level of this year’s non-core spend to reflect the uncertainties in relation to the quantum and duration of funding required to meet external challenges.
Core expenditure increased above the Medium Term Expenditure Strategy in recent years but this SPU sets out a return to the 5% growth rate in line with the Budget. The overall provision for spending of €97.1 billion this year continues our investment in schools, transport, health and childcare. It also encompasses the recently agreed Public Sector Pay Agreement and the additional capital investment into the National Development Plan (NDP) agreed by Government last year. Looking to the future, spending in 2027 is projected at over €110 billion. This increased investment will help us to improve living standards, supporting economic growth and help us tackle the challenges of climate change and the green transition. The continued capital investment through the recently reviewed National Development Plan will make a difference to our lives, particularly in areas like Housing.
Over the coming months I will be assessing our plans ahead of the SES, which will set out more detailed parameters for Budget 2025.”
ENDS
Notes to Editors:
1. The Stability Programme Update is a legal requirement: all Member States must submit to the European Council and Commission by end-April each year.
2. The document is prepared based on existing government policies, with no new policies included.
3. The Department produces two macroeconomic and fiscal forecasts each year, a spring forecast with the Stability Programme Update in April and an autumn forecast with the Budget.
The macroeconomic analysis and forecasts contained in this document are based on data available to end-March 2024. The fiscal projections are based on data as of mid-April. The presentation provided to the IFAC is available on the Department of Finance website. https://www.gov.ie/en/publication/e1660-spu-2024-presentation-to-ifac-28-march-2024/
4. Governance reforms at EU level mean that Member States will have to submit a medium-term fiscal-structural plan to the European Commission going forward. These plans will commit Member States to an agreed net expenditure path. The plans will be endorsed by the Council of the European Union and will be monitored annually through Annual Progress Reports which will replace Stability Programme Updates and National Reform Plans.