Minister for Finance Paschal Donohoe reminded us on Wednesday of a potential rip tide in the current of positive exchequer data. Announcing another strong set of exchequer returns for January, showing the Government netted €6.7 billion in tax receipts last month (up 24 per cent on the same month last year), he noted that since the pandemic began, the Government's approach has been to support the economy through a counter-cyclical budgetary policy to mitigate the effects of the Covid-19 outbreak.
“This has led to a significant increase in public debt which is now approaching a quarter of a trillion euro, the equivalent of €47,500 per capita, a figure that is amongst the highest in the developed world,” he said.
Ireland’s monster debt – it was put at €237 billion at the end of December – has gone somewhat under the radar in recent years. This is largely because interest rates are so low, making the burden of carrying such a big liability less onerous, particularly for a strong-growing, relatively wealthy economy like the Republic.
Borrowing rates
The State is also insulated from the immediacy of an upturn in borrowing rates by the fact that recent bond issuance is long-dated and, in the main, at a fixed rate. Nonetheless, it’s a ball and chain that we’ll be carrying into the future, swallowing valuable resources that could be used for a myriad of other pressing problems. Servicing it has cost us €60 billion over the past decade: equivalent to three years of health spending. It’s not a question of paying it off, it’s about making it a smaller percentage of national income. Forget GDP (gross domestic product) as that’s warped by multinationals, but our debt is still more than 100 per cent of GNI (modified gross national income), the Central Statistics Office’s bespoke measure of national income.
The Department of Finance's chief economist, John McCarthy recently warned that the Irish economy was in a "finely balanced position" and that budgetary policy would have "to walk a fine line" between supporting the economy and ensuring fiscal sustainability. He noted that the State's national debt would have to be refinanced in the coming years potentially at higher borrowing rates. And while market sentiment towards Ireland remains positive, this could change rapidly, he warned.
