The 2023 budget cannot become “part of the problem” when it comes to the rising cost of living, the finance minister said.
Paschal Donohoe told a conference on Friday that the government will target the “lowest” level of borrowing needed next year and will only look to help the most vulnerable, not to raise debt levels or fuel further price increases.
Donohoe asked for “perspective” given the uncertain economic environment and rising cost of borrowing.
Bond prices have been rising along with other eurozone countries in anticipation of the European Central Bank’s upcoming interest rate hike, which it confirmed this week will start in July.
“The days of cheap finance are over,” Donohoe said at the Economic and Social Research Institute’s (ESRI) annual budget conference Friday morning.
“We will target the lowest level of borrowing needed to respond to the different developments and tensions occurring in society and government.”
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He said the government will aim for “a further reduction in the debt-to-income ratio” in the coming year, while committing to helping those hardest hit by the rising cost of living.
Public debt is 96.5% of national income, lower than the European average, but the government is targeting a ratio of around 80% by 2025.
Donohoe warned that any other welfare measures should not fuel inflation, which hit a 38-year high of 7.8% in May – or 8.2% under the EU’s harmonized measure.
“Of course we will continue to recognize and help with the cost of living challenge, but overall we have to prepare and deliver a budget that in and of itself does not add to the inflationary pressures that are now clearly under way.
“Budget policy itself must not become part of the problem.”
Mr. Donohoe and Public Expenditure Minister Michael McGrath are currently laying the groundwork for the budget, with the summer economic statement to be published shortly.
Lower indebtedness, debt reduction, subsidies for the most vulnerable and less reliance on corporate taxes will guide the next budget, Donohoe said.
He warned that higher inflation – but not “at the rates we’re seeing” – is likely to continue.
“There are clear signs that an economic regime change is happening now,” he said.