Housing is set to be the “big winner” in the Government’s capital spending over the next few years with a significant increase flagged in its Summer Economic Statement.
In a press conference to highlight details of the statement, Minister for Public Expenditure Michael McGrath and Minister for Finance Paschal Donohoe disclosed that capital expenditure is planned to increase by 8.5 per cent compared to 4.45 per cent for current expenditure.
That would mean that capital expenditure would amount to €50 billion over the four years from 2022 to 2025 compared to €30 billion for the four years between 2018 and 2021. A significant portion of that increase will be earmarked for housing, he said.
Mr McGrath said that “tackling the housing crisis in all its forms is a top priority for the Government”.
He said he could not disclose the actual amount as yet but it would provide an “adequate funding foundation” for achieving the objectives of the Government’s major housing policy, Housing for All, which will be published later this month.
The Minister said he would not disclose the finer details yet but added:
“It is no surprise to anyone housing will be the big winner in terms of capital infrastructure.
“I should acknowledge it is on the back of sustained increase in recent years. Back in 2018 spending on housing was €800 million. It will be €2.8 billion this year, a three-fold increase.
‘Significant increases’
“It will increase further, there will be significant increases.”
The Irish Times reported this week that the final publication of the statement was delayed because of differences between the three parties in Government over how much exchequer funding should be allotted to tackle the housing crisis.
For his part, Mr Donohoe said the overall aim of the Summer Economic Statement was to get the economy to a stable footing in the wake of the Covid pandemic.
“We are committing to a strategy that will get the deficit to a level which we believe is consistent with normal Central Bank policies developing again, and reapplication of the (EU) fiscal rules and that stabilisation of the national debt.”
He said the Government had committed to get the changes needed in an upfront manner, and to do it over the next two budgets, so by 2023 there would be a lower deficit.
Both Ministers said the key way would be the gradual reduction of emergency Covid measures in addition to growth in the economy. Mr Donohoe said they wanted to get to a point in 2023 where the Government was borrowing for capital only.
‘Hope through realism’
He said the statement was about “hope through realism”.
“It (sets out) a realistic pathway for the Government . . . It will be a bridge to a better place but one that is based on realistic decisions.”
When asked about ongoing global discussions that might see Ireland having to increase its base rate of corporation tax to 15 per cent, Mr Donohoe said such a change was “not inevitable”.
Referring to the negotiations which will continue until October, he said: “What I am doing is standing by our national rate of corporation tax.”
John McCarthy, the chief economist in the Department of Finance, set out the economic data underlying the statement.
He said the high growth of 10 to 11 per cent growth in quarter one was attributable to a very small number of subsectors (such as pharma and Chinese-produced goods) which had a “limited downstream effect on the economy”.
He said GDP growth was now expected to be 9 per cent.
The risks were broadly balanced with a possibility of an “even stronger recovery in personal consumer expenditure” because of a build-up of savings during lockdown. Revenues have been revised upwards by €1.6 billon since the last estimates in spring. Mr McCarthy said the main downside risk was the Delta variant or any variant that might follow.
Looking forward, the spending growth would amount to 5 per cent each year over the next few years, with a deficit of 3.4 per cent of GDP this year, declining gradually to 1.5 per cent per year by 2025.
He added the debt to national income ratio was projected at being between 105 per cent to 106 per cent by the middle of the decade.
Mr McGrath said the unwinding of Covid spend would be a key driver in bringing the deficit down. He said the Covid spend in 2021 will be €15 billion but the Government’s position is it will fall to about €7 billion next year.
In terms of housing, Mr McGrath said other forms of non-exchequer funding would be available to bodies such as the Land Development Agency.
He also said that the challenges in implementing housing policy were not all about spending but came about partly because of bottlenecks caused by factors such as planning, judicial reviews, regulations, labour and construction inflation.
