Tuesday 20 August 2019

Donohoe takes tough stance on State debt

Finance Minister Paschal Donohoe
Finance Minister Paschal Donohoe

David Chance

Minister for Finance Paschal Donohoe has pledged to keep the State's debt on a downward path as he readies the 2020 Budget.

Debt to gross national income 'star' (GNI*), a measure of debt versus the underlying performance of the economy, stood at 104pc at the end of last year, down substantially from a peak of 166pc of GNI* in 2012, thanks in large part to stellar economic growth figures during the post-crisis recovery.

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"The level of public indebtedness in Ireland remains elevated," Mr Donohoe wrote in a review of the Department of Finance's analysis of the country's debt dynamics.

"As a small open economy, it is crucial that this debt burden is reduced to provide both a buffer against future shocks, while also safeguarding future generations," he wrote.

The Government posted its first budget surplus since the crash in 2018 and looks set to register another surplus this year, although a 'hard' Brexit could hit revenues and cause spending to rise, potentially pushing the country back into deficit in 2020. The Budget for next year is due to be presented before Britain's October 31 deadline for leaving the European Union.

Total debt stood at €206bn at the end of 2018, and the Government will likely see its interest bill fall further as the European Central Bank looks set to cut interest rates in September and to restart its bond-buying programme, which will push yields even lower. Irish 10-year government debt briefly slipped into negative yield territory earlier this week.

Mr Donohoe pledged to use "any potential windfall receipts, notably from corporation tax revenues, as well as proceeds from asset disposals" to reduce the stock of debt.

Bodies like the Irish Fiscal Advisory Council have criticised the use of surging corporation tax receipts to fund current spending in areas like health, where budget overshoots have averaged €500m a year recently. Government coffers have been boosted to the tune of €12.3bn by corporation tax receipts in excess of expectations, according to the fiscal council, an independent body charged with assessing the Government's budget plans.

In 2018, interest payments on general government debt were €5.2bn, or 6.4pc of government revenue, roughly half the level of 2013.

The Government forecasts that debt to GNI* will continue to fall and will hit 86.7pc in 2023, although that is based on the State running a budget surplus through to then, something the fiscal council has cast doubt on in its assessment of the medium-term budget plan.

Debt to GDP, which is the measure used under the EU's Stability and Growth Pact, stood at 63.6pc at the end of last year and is forecast to fall to 51.6pc by 2023, a measure that will put Ireland safely within the 60pc upper bound under the pact.

Irish Independent

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