Despite warnings, including several from the Irish Fiscal Advisory Council, that Government spending is now rising at an alarming and potentially unsustainable rate, the Economic and Social Research Institute (ESRI) disagrees, suggesting it is in keeping with recent and projected increases in economic output.
As part of its latest quarterly bulletin, the institute examined the recent hike in spending and the Government’s projected increases out to 2030 as detailed in its recent Summer Economic Statement.
It noted that, after the financial crisis, public spending in the Republic fell off a cliff and took a long time to recover but “from 2017 onwards, expenditure levels have begun to increase again”.
Total expenditure (current and capital) is projected to increase by 35 per cent to €133 billion between 2025 and 2030.
While this looks big on face value, it needs to be seen in the context of economic output to assess if it’s sustainable.
“Examining spending relative to national output provides a better understanding as to whether public services are improving or deteriorating, compared to indicators that only control for inflation,” the ESRI says.
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So while the nominal increase out to 2030 appears substantial, the institute notes it is lower as a percentage of national output than rates witnessed at the height of the Celtic Tiger.
“Therefore, although expenditure levels have increased somewhat in recent years, overall spending is still recovering from the post-financial crisis period when fiscal policy was forced to contract sharply due to the budgetary pressures at that time,” it says.
“The swift and persistent recovery in the economy since that period has meant that overall economic activity outpaced the level of government expenditure, particularly over the period 2010-2017,” it says.
The think tank notes that, in 2024, capital expenditure is only at the same rate of national output as it was in 1999.
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