Transcript of the ESRI Budget Perspectives 2025 Speech

13th June, 2024

I’ve had the opportunity to participate in many such conferences over the years and I always find the papers that you discuss and the immediate analysis offered a very helpful component in the work that we do in preparing for the Budget and then delivering it later in the year.

 

In doing that work, I am at times reminded of the resilience that’s involved in public life, and the value of resilience and the difference that it makes with all of the challenges and needs that exist.

 

I particularly see that when I look around the Dáíl Chamber in the aftermath of the many challenges of election time; a time that allows you to reengage, on an even more intense and daily level.

 

I’m reminded of the progress that we are making, and also of the areas of work that still needs to be done; an election time underlines both. It reminds me of the steady resilience and the progress we are making on the many issues that our country wants us to do better on.

 

But it also reminds me of the resilience that we have to display in making progress and dealing with many of the different challenges and needs that are evident within our society. The purpose of having a good economy and a resilient economy is your ability to respond back to those many different needs.

 

One of the greatest books I’ve read on this theme recently, is the book by Eric Angner “How economics can save the world”. A magnificent book, that if there’s anybody here in this room that hasn’t read it, I really would encourage you to do so.

 

 It takes economics back to its very roots. It reminds us that it is a social science, and reminds us that it is a tool of thinking and a way of analysing the world. That at its best is about how we can harness our collective endeavours to make a difference to communities and make any difference to individuals. And in this book, he ends with the conclusion that economics has always been about fixing the world, making it a better place.

 

What I want to do in my few minutes here today is to relate that concept of resilience back to that aim of economics. And I want to make the case that in areas within the European economy and the Irish economy, we don’t at times recognize the degree of resilience that is there. Then with regard to Budget 2025 and the work that needs to be done, to make the case for how that Budget can be an important piece in that framework regarding how we deepen resilience in the years ahead.

 

But in order to do all of that, and in order to make those decisions we do need and I want to echo the point just made by the chairman of the ESRI, Sean O’Driscoll, about the value of evidence and about the value of impartial analysis, which is something that in my different roles as a Minister for Finance in recent years, I’ve always made a very, very strong case for saying that, the use of evidence always matters.

 

But it increasingly matters at a time in which the very case of truth, the very nature of objectivity, is itself under pressure.

 

So the use of evidence, the impartial analysis of competing claims, is a critical element, not just in the health of the democracy, but a critical ingredient in how we conduct economic policy. And in the decisions that we make regarding the concept that I’m going to develop – the economic resilience of our country, and indeed, Europe.

 

And my assessment is that the ESRI have been a critical element in the architecture of our broad State. And I know today you’re going to be discussing papers in relation to pensions and in relation to PRSI. I’ve had an opportunity to have a look at some of those papers, and to see some of the conclusions within them.

 

But if you want to see and need further evidence of the value of the work the ESRI does have a look at the publication that they did on the social world for 13 year olds, produced here in this building.

 

A really key example of the importance of evidence and analysis, it is helping us understand what is going on in the economic and social life of our younger citizens.

 

Have a look at the paper done by the ESRI in relation to gambling, and if ever, you needed examples of papers that contribute to the goal that Eric Angner talked about, regarding how we can flourish, and the role of economic policy, and analysis, it is papers like that, which bring evidence and scrutiny to bear on some of the most important topics that we have, not just within our economy, but within our society.

 

So it is for that, and for many other reasons that myself, my officials and the government have been delighted to look at how we can further support the work of the ESRI in the years ahead. And I have to say a central element of that is not just the quality of the academic papers I was able to reference a moment ago, but it is the work that Alan Barret does, it’s the work that Sean O’Driscoll does, in representing you and leading this really important institution.

 

So with that frameset, I’m going to come back to the concept of resilience, and I’m going to look at resilience under a number of different headings. I’m going to start by looking at where the euro area economy stands at the moment and making the case for the resilient performance of that economy.

 

And then I’m going to move back to where we are here in Ireland from an employment and public finance perspective, and then conclude with how all that feeds in to the work that we are doing, and the work myself and the Minister for Finance, Minister McGrath, are doing, in looking at how we put in place the plans for Budget 2025.

 

So beginning with where we are in the euro area economy, Sean made reference there earlier to the many different sessions like this that have taken place. One of the ones that I most vividly remember, is the meetings like this that took place in the aftermath of the COVID pandemic. And I for one will never forget the work that was going on as we were assessing where our economy stood as the pandemic hit, and what that could mean for the performance of our economy in terms of jobs and public finances in the years ahead. But if that was a challenge at national level, the challenge or the area of the overall euro economy was even more acute. And if you look at the set of crises that we had to grapple with, the picture looks stark.

 

First, the impact of the pandemic, particularly on the single currency zone, and what that meant for the functioning and viability of the euro. And just as we were exiting through that tremendous, tremendous public health crisis and then to be hit by a level of inflation that the euro area has never experienced, was exactly the kind of challenge and task that we hoped we wouldn’t have to confront again, in the aftermath of the global financial crisis. But we didn’t just have to experience one of them, we had to experience two.

 

 We had to experience them one after the other. And I think it’s important to remember where we began when you then have a look at where the euro area stands at the moment. If you look at the latest forecasts from the European Commission, regarding economic growth, it says for last year, we grew by 0.4%. For this year, it’ll be around 1.8%. For next year, it will be around 1.4, to maybe just under 2%.

 

This is a level of economic performance that when we compare it to other significant currency areas isn’t as strong as we would want. But on the other hand, if you have a look at where we stand with employment, and if we recall, that since 2023, we’ve now had a further 2 million jobs created within the euro area. And we now have employment within the euro area, standing at an all-time high of 75.3%.

 

So when we are looking at how the euro area is performing at the moment, I think there’s a case we need to make a bit more actively and a bit more visibly, regarding the fact that we are the part of the world that’s closest to the war in Ukraine and closest to the inflationary shock that emerged from all that. With the part of the world that many predicted would most likely move into a recession, as opposed to a technical recession.

 

But despite all of those challenges, we have a euro area today, that has never had more people at work, in its history, and is experiencing a level of employment growth, that is without precedent in its own history.

 

And that level of resilience, and all of the economic decisions that went in, to get into that point, is something that I think we can make the case for, and look at how we can build on in the time ahead.

 

That leads into where we are here in Ireland, and where our performance stands at the moment. I think it is the case, again, that when we look at when and how we analyse the Irish economy, we quite frequently look at measures in relation to how we define national income, how we define and look at what’s happening in our public finances.

 

But I think again, we need to keep sight of those things that really matter to those of us in public life. And for you who are seeking to develop views regarding how we can get to a better economy. And that’s most clearly seen in the resilience of jobs performance in the Irish economy.

 

If you have a look at the Stability Programme Update, published by the Department of Finance, there a number of weeks ago it indicates that in the years ahead, we will have between 2.7 million rising up to 2.8 million people at work within this economy.

 

Those figures alone are nearly an increase of around 100,000 people at work versus where we were 12 to 18 months ago. And that’s the kind of employment performance that when I was a student of economics a few decades ago now, reading books by people like Paul Tansey, reading the economic survival textbook by John O’Hagan, that was the kind of employment performance that we aspired to.

 

That’s a level of employment, that we were able to move back to out of the pandemic, and a level of employment that we are sustaining, and a level of employment that we can be confident that we can build on in the time ahead.

 

So again I go back to that point of resilience, acknowledging that level of resilience within our economy from an employment perspective, and noticing that when we get to budget 2025, when we look at the future of capital investment, a key thought within all of that is how do we retain those jobs?  And how do we create even more of them in the time ahead? This been the level of a labour market performance that even as recently as two decades ago, is, as I said, something that would have looked like a very demanding ambition.

 

Which leads on to my third point on resilience. If that is the case, regarding how we can argue for resilience within the labour market, I think there’s an equally important and powerful case to be made with regard to our public finances.

 

So if you go back again to one of my favourite publications of the year, the Stability Programme Update – I‘m one of these people that keeps all of the different editions of the SPU nearby, that’s the kind of politician I am – I like to leaf back on them and look at previous predictions, look at how we’re doing at the moment, and compare and contrast our expectations of where we are now, versus where we thought we would be. And I see here in the audience, my great colleague, John McCarthy, the chief economist of the Department of Finance.

 

And I again can very vividly remember the work that we would do in 2020, preparing the Stability Programme Updates in the early moments of the public health crisis. So let’s look at where we stood from a public debt perspective, in 2019, and 2020, and where we are here today. So in 2020, our expectation was that debt was going to be that year, as a percentage of GNI star, I know, this is one of the few audiences in the country that I don’t need to explain GNI star to; we expected it in 2020, it would stand at 125% of GNI star- public debt as a share of national income. And that was going to be as a consequence of all of the necessary decisions that we need to make to support our economy. And as we stand here that figure is now 69%.

 

So what we have seen happen during that period, is we have seen the State engage in two periods of significant expansion and stabilization within our economy; once during a pandemic and once during a period of soaring inflation and in the aftermath of that would have returned back to public finances that are at least as stable as the starting position before we initiated that economic activity.

 

This is something that in the economic history of our country, we were rarely able to do once. It’s something that in the last five years, we’ve now done twice, and we’ve returned back to public finances that are stable and strong.

 

And even if you look at where we are now; where we will be in 2025 versus where we were in 2019 our debt as a share of GNI star is below where it was at that level and in the aftermath of us intervening during the pandemic. We ensured that debt as a share of national income would decline.

 

So again, I go back to that point of resilience, making the case for that whether it’s employment, whether it’s our public finances, we’ve shown and displayed due to the collective effort of the country, a degree of resilience that at times we underestimate but the one area of economic resilience we should not underestimate, because it’s not economic, it’s not academic, it’s real, it’s tangible, is the ability we built up in the State to intervene, but then the decisions we need to make after that to withdraw those measures.

 

And if you look at what has happened both after the pandemic, and work we still need to do, as we hope and believe, go into a lower and more stable inflation environment,

 

We did three things.

 

We focused on balancing our books again, they’re moving into a position of surplus, we withdrew all the emergency expenditure, and as tax revenue began to recover and indeed increase for a period of time we didn’t use that increased level of taxes to change our expenditure.

We had clear plans going in before tax revenue began to change. And I have to emphasize the importance of that point. By building up resilience within our public finances. It gives the ability to intervene and help.

 

On a very human and political level, my defining experience as a politician was the global financial crisis; sitting in my constituency office all day long on a Monday, all day long on a Friday seeing what happens when you’re in that degree of difficulty, and the State doesn’t have the ability to intervene. It’s happened twice over the last five years due again, to that ability to build up resilience in our public finances and take the necessary actions to preserve and strengthen.

 

Which then leads on to my final two points regarding Budget 2025 and how we continue with that approach. It goes, without saying that the approach of myself and Minister McGrath is how we preserve that approach, responding back to the issues and needs of the today, but keeping that stable anchor in place regarding our public finances.

 

And the key element of that is the work that the Department of Finance and Minister McGrath now have underway with regard to the legislation in relation to two funds for the future of our country; the Ireland Future Funds, and the Infrastructure, Climate and nature Fund with regard to climate and capital infrastructure.

 

These funds are so important, again, relating back to that concept of resilience, the mere presence of those funds, with the right level of funding within them again, deepens the resilience that I talked about, because of that reputation and conception of credit worthiness, that is a silver thread in helping a country deal with great moments of challenge.

 

But beyond the presence of those funds, when they are built up, particularly the work that the Minister and the Department are doing in relation to the capital investment gives us the ability to build up that level of resilience that we know wasn’t there in the global financial crisis, which is the ability if and when we move back into more difficult moments, to have a fund that we can use to maintain the real value of capital investments.

 

To be able to invest when the private sector can’t, to be able to keep on building more homes, building more schools, in counter cyclical environments, and our fund in particular, and making the case for it, as we finalize our budget plans, for the year ahead will be critical.

 

And then I’ll end on that very point, I’ll go back to the point Sean made regarding the importance of trust. I’m so aware at the moment of the critique and analysis that can be there regarding the sense of a perma-crisis, and what that means to how people view their political system and those who represent them

 

And straying briefly into the world of politics. I’m sure you’ll bear with me as I do it, I hope you can see the difficulties and consequences that can be challenging democracies. I hope here within Ireland we can continue to make the case for an alternative approach. It will continue to be my strong belief that the role of evidence, the role of facts in a public debate is a really valuable ingredient in all of us, which is why the work of the ESRI continues to be so important. It’s why I want to be here today. And it is why the work that you’re doing and the papers that you discuss are so important, not just to economic policy, but the broader contribution they make to trust, cohesion and order within our society.

 

And again, we know the value of it’s the foundation upon which economic policy rests. It reminds us that as important as an economy is and God knows how vital it is, economies exist within societies. The purpose of economic policy is to respond back to the needs that our society has, and to ensure that we always have the resilience that I’ve made the case for in our employment, in our currency, in our public finances, and in our budget plans for the future, to give us the bedrock to be able to respond back to the needs of our children, our elderly those who need better homes, because without that resilience, our ability to do that is hindered and not what we want it to be.

 

So, Sean, thank you for the opportunity to be here. I hope you have a great day of deliberation and I look forward to the continued really important role the ESRI will play in the public and economic debate in the years ahead.