- Public debt increased by €33 billion during the two years of the Covid-19 pandemic and is now close to a quarter of a trillion euros.
- This is an estimated 106 per cent of national income, or €47,250 for every person in the country.
- Notwithstanding the increase in public indebtedness, the debt service burden has fallen, reflecting the decline in borrowing costs.
- Further debt accumulation would increase fiscal vulnerability.
- Major fiscal challenges lie ahead, including a likely fall in corporation tax receipts, an ageing population with very large fiscal costs and the need to finance the transition to ‘net neutral’.
- Such challenges highlight the importance of rebuilding our fiscal buffers in the years ahead.
The key messages from the analysis are that, firstly, allowing public debt to increase was the appropriate response to the pandemic and, secondly, the increase in public debt is manageable, but only if it is managed in a careful and prudent way.
Commenting on the analysis set out in the Report, Minister Donohoe said:
“The analysis published by Department today highlights the significant impact of the pandemic on the public finances.
“The Government responded swiftly and forcefully to minimise the economic fall-out from the pandemic and this was the appropriate strategy. The economic supports that we put in place saved jobs, supported households and kept businesses afloat the length and breadth of our country.
“Last week, the CSO published data showing a record level of employment in our country – nearly 2½ million at work; the economic supports that Government put in place helped to save many of these jobs.
“As of now, the tide appears to have turned on the pandemic and, at least in aggregate terms, the economy is bouncing back strongly. As the economic recovery gains traction, it will be necessary to slow down, and subsequently stop, adding to our public debt.
“From a policy perspective, that is what I intend to do. In last year’s Summer Economic Statement, the Government set out a medium-term framework for the public finances, with public expenditure ceilings that are fixed for the coming years.
“Government is also conscious of the challenges facing the public finances – the high likelihood that corporation tax receipts will decline from their current levels and an ageing population which will absorb much of our resources in the years to come.
“This is why we need to rebuild our fiscal buffers, including by steering the public finances to a more balanced path. We can do this while continuing to make significant capital investment, as outlined in the National Development Plan. This will help to lay the foundations for future growth while protecting against the future fiscal challenges that lay ahead of us.”
