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Core budget spending to rise by €3 billion in 2021 – McGrath

The Minister for Public Expenditure and Reform has said that without accounting for policy measures in key areas, such as health and housing, the Budget estimates for next year will include an increase of approximately €3 billion in core expenditure.

A further €9bn roughly will be needed for Covid related spending, Michael McGrath said, although work is currently continuing to assess exactly how much.

Mr McGrath said this would be in addition to the €70.4bn in voted expenditure allocated to departments in revised estimates for 2020 that were published last December.

Addressing the Oireachtas Committee on Budgetary Oversight, Mr McGrath said of the €2 billion in additional current spending it is estimated that there are pre-commitments of €1.1 billion to be funded in relation to demographics, and to meet the carryover costs of prior year measures and of public service pay deals.

On the capital expenditure side, the Government will also ensure that the increase in capital investment set out in the National Development Plan is implemented to support the recovery in the economy.

“This would see core gross voted capital expenditure of almost €9.2 billion next year, an increase of almost €1 billion on the gross voted expenditure amount set out for this year in Revised Estimate for Public Services 2020 (REV),” Mr McGrath said.

Speaking ahead of next week’s Budget, Mr McGrath said the overall strategy for it would prioritise crisis management measures to address challenges arising from Covid-19 and Brexit, while also maintaining existing levels of service within core expenditure programmes.

Mr McGrath said the economic and fiscal situation has changed dramatically in the recent months as the Covid-19 pandemic has had a severe impact on the economy, public finances and the lives of citizens.

The minister said work is ongoing in assessing the impact of Covid-19 costs next year and there is a range of potential expenditure requirements that need to be worked through in detail.

“Taking into account the level of expenditure arising from Covid-19 this year, these costs will be significant, but are also subject to significant uncertainty,” he said.

“With the additional funding required for Health and Social Protection amounting to over €12 billion in aggregate this year, as we continue to live with the virus and manage any resurgences through 2021, the funding required for our health service and for income and employment supports will remain significant next year and also subject to a degree of uncertainty that would need to be reflected in the estimated expenditure amounts for next year.”

He said additional supports introduced so far this year are estimated to cost €16bn this year, bringing gross voted expenditure for the year to €86.5bn.

“This represents an increase of over €19bn or 30% compared to expenditure in 2019,” he said.

Total spending on social protection will reach over €30bn, including €9bn in additional funding.

He said the revised etimate for health approved by the Dáil in July included a €2bn increase relative to the allocation set out in the REV published in December last year and further funding has also been agreed.

“While work is ongoing at finalising the funding requirement for this year, it is estimated that overall  increase relative to the December REV could be up to €3 billion,” he said.

Asked by Labour’s Ged Nash whether he agreed with the Irish Fiscal Advisory Council’s view that a €10bn fiscal stimulus is needed over the next five years, Mr McGrath said the economy would need very significant and sustained support over the years ahead.

“On Budget day, we do need to give confidence to the business community, to employers, that we see a way out of this and that we have a plan to bring the country through what is a very challenging and a very uncertain period,” he said.

He added that the Government is examining the concept of a Recovery Fund and it is important we have flexibility next year so we can respond rapidly to changes in the economy.

Mr McGrath said the concept of a Recovery Fund is a good one and it will form part of the Budget day package.

In relation to an extension of the wage subsidy scheme, Mr McGrath said the Government had committed to it until the end of March, but the issue is being considered in the context of the Budget as well.

“We are under no illusions about the level of dependence that many employers have on that scheme now and we need to think very carefully about the future of that scheme, particularly around an abrupt end to it,” he said.

Responding to a question from Fine Gael’s Bernard Durkan on the likely scale of next year’s deficit, Mr McGrath said we are looking at very significant borrowing in 2021 in order to support the economy, maintain public services and improve some, including adding capacity to the health service and building more houses.

He said the deficit would be less than €20 billion but still very significant.

This would involve further borrowing he said, and while we currently borrow at historic lows, we are taking on additional debt, it will mature and will have to be refinanced, possibly in a very different environment.

So we have to be careful in the decisions we make, he said, as the cost of borrowing could be dramatically higher in the future and the national debt needs to remain sustainable.

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