€20.3bn deficit… Government’s Summer Economic Statement provides unfavorable signs
DUBLIN: The Summer Economic Statement (SES) provides unfavorable indications regarding the country’s economic status. Even though statistics suggest that economic growth is advancing, the rising fiscal deficit is not a good sign. SES expects Ireland’s GDP to grow by 8.75% in 2021. But contrary to what was said last April, the fiscal deficit rose to €20.3 billion from €18 billion, which causes concern.
Exchequer is getting emptied
The Stability Programme Update, published in April, forecasted a €18 billion deficit. The negative balance in the country’s exchequer is considered to be unfavorable. Moreover, it threatens to incur huge debts to cover the deficit. Despite the fact that tax revenue is projected to rise to €1.6 billion this year, the country’s present growing deficit is adverse.
SES estimates that next year’s deficit will be 6.2% of GDP. By the middle of this decade, the fiscal deficit is projected to reach €7.4 billion. This is €6.5 billion more than expected in the Stability Programme Update. The statement added that the Government would have to borrow €18.8 billion more than previously planned to make up for it. Earlier, it was set at €4 billion, with the amount calculated based on economic, social, and climate priorities.
According to the Summer Economic Statement, fiscal trade-offs are likely to resurface as we emerge from the pandemic. “We will also need to refocus our attention on the longer-term challenges which face us, including an ageing population, and the need to finance the digital and carbon transitions.” the statement says. Overall, government spending is expected to be around €93 billion by 2025.
Finance Minister’s comments
Minister for Finance, Paschal Donohoe said: “The provision of over €40 billion to directly address the public health emergency, shore-up household incomes and provide lifelines to firms during COVID-19 has had an impact on our debt and deficit figures.”
The core budget package for next year is €4.7 billion. Of that, €1.5 billion will be available for new measures. In addition, €2.8 billion has been earmarked for additional income, business and other supports.
The government also sees an increase in non-COVID related spending in 2022. This is expected to increase by 5.5% to €80.1 billion. There are also provisions for continuing temporary support, including €8 billion from the European Union. The Finance Minister explains that all of this contributes to the country’s fiscal deficit.
The National Treasury Management Agency has updated its guidelines for international borrowing following the publication of the Summer Economic Statement.
Sin Fin criticizes
Meanwhile, Sinn Féin has accused the government of failing to make adequate investments in housing. Sinn Féin’s finance spokesperson Pearse Doherty has said the SES fails to outline adequate housing spending for Budget 2022. “Just €800 million in additional capital investment has been outlined, with no breakdown of where this money will be spent,” he said.
“This is at a time when the ESRI have called for a doubling of capital investment in housing to deliver up to 18,000 homes per year,” Mr. Doherty said. He also said the government have clearly failed to understand the magnitude of the housing crisis.
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