From Department of Public Expenditure, NDP Delivery and Reform
By: Minister for Public Expenditure, NDP Delivery and Reform; Michael McGrath
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Introduction
This National Economic Dialogue comes at a critical juncture as we plan for a recovery that is fair and balanced for our people, while seeking to return the public finances to a position that provides the resilience to respond to the challenges ahead.
In this context, budgeting is about much more than setting out spending allocations and raising revenue. The budgetary process must also support the use of these allocations to deliver public services effectively in a way that improves people’s lives. In recent years, there have been a number of reforms to support greater and wider engagement in the budgetary process, with the National Economic Dialogue being an important element of these reforms.
While we are very much still dealing with COVID-19 and are facing renewed uncertainty with the Delta variant, the government is continuing to support our people and businesses suffering from the impact of the pandemic. The vaccine rollout is continuing at pace, and more and more of our people are benefitting from the protections. The overall direction of travel is positive.
As the economy starts to recover, the priority will be to support our people in getting back to work and using the available public resources to stimulate economic activity while addressing key priorities for our people in housing, health, education and climate action. This is reflected in the overall theme of the dialogue that of building a sustainable recovery post-COVID, with the breakout sessions focussing on some of the challenges in key priority areas for Government.
Budgetary Response to Pandemic – Direct Public Expenditure
Direct public expenditure measures have formed a critical part of the government’s response to COVID-19. Over the course of 2020 and 2021, approximately €30 billion has been made available by Government to fund these expenditure measures.
As part of Budget 2021, an amount of €87.8 billion was provided for this year to fund key public services and to allow the State to provide continued supports to mitigate the impact of COVID-19 on our society and our economy. Taking into account the additional supports provided in the Economic Recovery Plan, the gross expenditure provision for the year will be in the region of €90 billion.
This compares to an amount of just over €70 billion in planned expenditure for 2020 pre-COVID. This in particular reflects the significant income and employment supports provided by the Department of Social Protection through the Employment Wage Subsidy Scheme (EWSS) and the Pandemic Unemployment Payment (PUP). The planned pre-COVID expenditure in that department for 2020 was just over €20 billion. This compares with approximately €30 billion for 2021, including the measures set out in the Economic Recovery Plan.
Last week, the CSO reported a COVID-19 adjusted rate of unemployment for May of just under 22%. Across May, Revenue processed EWSS payments in respect of almost 300,000 employees. These figures illustrate the devastating impact that the pandemic has had on our people and businesses. The scale of the government’s response has been both essential and effective in mitigating these impacts.
As we look forward, the key priority as the economy and society continues to reopen, is to ensure the careful withdrawal of these supports. This is essential to support an inclusive recovery and to return the public finances to a more sustainable footing. The gradual unwinding of the exceptional COVID spending is fundamental to the task of bringing our national finances to a safe place over the period ahead.
Failure to unwind COVID-19 spending once COVID-19 is behind us means this has to be funded by higher taxes or by running larger deficits for longer, with the associated risks this brings for our finances once the ECB’s intervention in the markets tapers off and the fiscal rules are fully reinstated. The bottom line is we must manage our finances sensibly as we emerge from COVID-19 to avoid major problems down the line.
Budget 2021 – Addressing Core Expenditure Priorities
Before the pandemic, there were significant challenges, and these have not disappeared. In the Programme for Government - Our Shared Future the government has set out these challenges and we are determined to deliver on the commitments including implementing Sláintecare, building more houses, greening our economy, and supporting labour market activation and training.
While framed in the context of the pandemic, Budget 2021 allocated additional resources to advance certain key priorities. Since 2019, core expenditure has increased by €8.5 billion or 13%. Of this, three quarters of the increase has been in the sectors of Health, Education, Social Protection and Housing.
The pandemic has demonstrated how much we rely upon our health service. In addition to providing for COVID-19 related funding, core current expenditure in the Department of Health was increased by 10.7% in Budget 2021 in order build permanent capacity within the health system and to implement Sláintecare.
As part of Budget 2021, we also committed to a major increase in the capital allocation for housing in order to directly increase the supply of social and affordable homes.
Reflecting the critical role that capital investment has to play in delivering on economic and social priorities, core capital investment increased by 19% in Budget 2021. When combined with a capital carryover of €0.7 billion, departments and agencies have potential to spend €10.8 billion of Exchequer funded capital in 2021, the highest level in the history of the state. We believe smart capital investment decisions can play an important part in our recovery and we are committed to maintaining an ambitious public capital investment programme into the future.
Response at European Level
The coordinated response at European level has been important in meeting the challenges of the pandemic. The extraordinary fiscal response to the crisis has required that Government borrow significant sums to fund the necessary measures.
Last month, Government agreed the submission to the European Commission of Ireland's National Recovery and Resilience Plan 2021. The draft Plan, involving projects with a value of almost €1 billion, will enable Ireland to access funding under the EU's Recovery and Resilience Facility which forms the centrepiece of NextGenerationEU, the Union’s response to the global pandemic.
Ireland’s National Recovery and Resilience Plan includes a set of 16 investment projects and 9 reform measures, focussing on: advancing the green transition; accelerating and expanding digital reforms and transformation; and social and economic recovery and job creation.
European solidarity has also been seen in the response to Brexit. Earlier this month, agreement was reached between the Council of the European Union and the European Parliament on the Brexit Adjustment Reserve (BAR). The agreement will see Ireland receive just over €1 billion of Brexit funding. While we are still understanding the impact of Brexit, as its effects continue to unfold, funding under the BAR can be used to support employment, businesses and local communities negatively affected by Brexit, including those in the fishing industry.
Public Expenditure Strategy
While support at European level has been important, critical to the ability to respond to the COVID-19 crisis was the sound position of the public finances. The strong fiscal position coming into the crisis meant that we were in a better position to support incomes and jobs during the crisis. As we continue to support recovery in the economy, we must also look to return the public finances to a sustainable position over the medium term. In order to deliver on our social and economic priorities, our public resources must be used efficiently to effectively deliver public services and public infrastructure.
Getting better outcomes isn’t always about spending more – it is sometimes about spending better. Measuring outcomes and ensuring value for money is key.
A central part of this overall public expenditure strategy will be a new national development plan (NDP). This will set out for the upcoming ten-year period to 2030 revised sectoral capital allocations, including non-Exchequer investment, in addition to providing a renewed focus on the delivery of efficient public infrastructure.
As with the existing NDP, the revised plan will be aligned with the national planning framework to support strong regional infrastructure investment, generate local employment and improve capability in respect of economic activity throughout all the regions.The plan will include an overarching focus on climate across all sectors. This approach is in line with the results of the public consultation process. This consultation process showed near consensus on the importance of climate action, balanced regional development, sustainable housing, and transport.
Concluding remarks
COVID-19 has presented challenges to our society and economy. Our people made significant sacrifices to implement the public health measures required to slow the progress of the virus. Lives have been lost, and workers and businesses have faced into enormous challenges. Our public services have worked to support our people, with the staff in our Health service responding to the most challenging of circumstances.
Given the pace at which the vaccines are being administered, there are reasons to be hopeful that we as a society can together overcome the challenge posed by the pandemic.
However, we must also recognise that the pandemic has impacted some people and sectors more than others. That is why we must work to ensure that the recovery is balanced and inclusive.
The need for such an approach is reflected in the format of the National Economic Dialogue today, with a larger number of breakout sessions than ever before.
The insights that you as key stakeholders provide will be important as Government develops its strategy to support recovery in society and in the public finances over the the coming years. This will of necessity require choices to be made with certain measures prioritised as permanent expenditure measures must be sustainable over the medium-term. It is important that this is considered during your deliberations.
I look forward to a constructive and challenging discussion over the course of the Dialogue.