Coalition’s fiscal policy changed dramatically in three months


In the space of three months, the government’s fiscal policy changed dramatically. The desire to balance the budget by 2025 – clearly defined in April – has been abandoned.

Instead, the Summer Economic Statement (SES) puts us on an entirely different fiscal path, envisioning a series of much larger budget deficits, ending in a deficit of € 7.4 billion in 2025.

On the other hand, the stability program presented in April by the Minister of Finance Paschal Donohoe had forecast a deficit of only 800 million euros for 2025: for all practical purposes a balanced budget.

The new estimates call for an additional borrowing of € 18.8 billion over the next five years, largely thanks to the borrowing that will be needed to finance housing construction.

The change is undeniably linked to the housing crisis and the political fallout that awaits Coalition parties if the status quo continues, as illustrated by Fianna Fáil’s result in the Dublin Bay South by-elections last week.

It also follows a report by the Institute for Economic and Social Research (ESRI), calling for a doubling of government capital investment in housing, which the think tank said could be funded by larger annual deficits. important.

The division in government over economic policy has delayed the release of the SES. Senior Cabinet officials are said to have opposed spending plans in the government’s soon-to-be-released housing for all strategy.

In the normal course of events, the SES follows the Stability Program Update (SPU), which was submitted to the European Commission in April.

But a quick comparison and contrast of the two documents shows that something has changed in the body politic.

Forget about the massive update to the government’s overall growth projection for this year – from 4.5% to 8.75% – which was expected due to a rebound in stronger than expected consumer spending and exports .

The area to focus on are government spending and deficit projections through 2025. Someone picked up a red pen for the USP estimates.

The deficit of 18 billion euros forecast for this year has increased to 20.3 billion euros while the near-balanced budget forecast for 2025 has been replaced by a projected deficit of 7.4 billion euros.

“This is around 6.5 billion euros more than forecast in the SPU and reflects the government’s commitment to fund capital investments and achieve the goals of our national development plan [NDP] revision, ”said the SES, noting that the government will cumulatively borrow 18.8 billion euros more than initially planned.

The SES was quickly followed by a statement from the National Treasury Management Agency (NTMA), the state’s debt management agency, alerting markets and creditors that it was changing its 2021 funding range to meet account of the new budgetary position of the government.

Make no mistake, the fiscal sands have shifted.

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