Donohoe Signals Shift Towards Restrained Spending as Inflation Cools
Finance minister Paschal Donohoe has indicated a move towards reducing government spending growth, citing a decline in the overall rate of inflation in Ireland. While inflation stood at 1.7% as of July, food prices remain substantially higher, at almost 5%, driven by increases in the cost of items like beef adn butter. Despite the general downward trend, concerns remain about the ongoing cost of living pressures faced by the irish public.The upcoming budget Day package, to be announced in the Dáil on October 7th, will be worth €9.4 billion. However, unlike previous years, it will not be accompanied by a separate cost of living package. Minister Donohoe, alongside Public Expenditure Minister Jack Chambers, intends to move away from “one-off supports” and rather focus on “more permanent, targeted measures.”
“Minister Chambers and I will look at how we bring to an end the supports of the past, but go back to what we used to do in the past as well, which is that every single budget has brought forward measures that are permanent, that we believe we will continue to be able to afford, and will be more targeted,” Donohoe stated on Friday.
This shift accompanies plans for a new spending rule, to be announced later this year. The current 5% spending limit, established by the previous government, aims to control budgetary increases. However, this rule has been repeatedly breached, drawing criticism from the budgetary watchdog, who argue it has potentially added €1,000 to typical household costs despite providing financial relief.
Donohoe defended these breaches, stating they were necessary to provide support during the pandemic and the recent surge in the cost of living. “I realy don’t think anybody would be praising the government or myself for good economic management if we’d done that,” he said.
The Minister also outlined ongoing consultations with Taoiseach Micheál Martin and Tánaiste Simon Harris regarding a multi-year plan for IrelandS public spending, to be revealed “around the budget.” He acknowledged the need to “moderate” the rate of current spending growth, which currently stands at just over 6% as of the end of August – a meaningful reduction from earlier in the year.
“If you look at where we are during the year…it is below where we have been in other years,” Donohoe told RTÉ radio. He emphasized the need to “change gear a bit now in current spending, because inflation has come down by so much,” particularly as the government plans to invest €112 billion in the country’s future over the next few years.Addressing Ireland’s national debt, which reached €218 billion at the end of 2024 - approximately €15 billion higher than pre-pandemic levels – Donohoe acknowledged the impact of rising interest rates. This debt equates to €40,500 per person and is comparatively high amongst advanced economies.
He also highlighted potential economic challenges, including ageing demographics, decarbonisation efforts, and potential tariffs imposed by a future Donald Trump governance, as factors impacting public finances. To mitigate these risks, the government will target headline budgetary surpluses and continue contributing to the Future Ireland Fund and the Infrastructure, Climate and Nature Fund.
