Committee on Budgetary Oversight díospóireacht -
Wednesday, 8 May 2024

We have received apologies from Deputies Nash and Cowen. This evening's engagement is to discuss the stability programme update, SPU. I welcome the Minister for Finance, Deputy Michael McGrath, and Minister for Public Expenditure, National Development Plan Delivery and Reform, Deputy Paschal Donohoe, and their teams. I thank them for being here today. The stability programme report was published earlier in April by the Department of Finance. It sets out the current economic and fiscal outlook of Ireland's medium-term strategy and emerging economic risks. The committee is undertaking its own pre-SPU scrutiny and it welcomes the opportunity to engage with the Ministers on this matter.

Before I begin, I wish to explain some of the limitations to parliamentary privilege and practice of the House as regards references that may be made to other persons in evidence. Witnesses are protected by absolute privilege in respect of their presentations to the committee. It means they have an absolute defence against any defamation action for anything they may say at the meeting. However, witnesses are expected not to abuse this privilege. It is my duty as Chair to ensure this privilege is not abused. Therefore, if statements are potentially defamatory in relation to an identifiable person or entity, witnesses will be directed to discontinue those remarks and it is imperative they comply with any such direction.

Members are reminded of the long-standing parliamentary practice to the effect that members should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable. I remind members of the constitutional requirement that members must be physically present within the confines of the place where Parliament has chosen to sit, namely, Leinster House, in order to participate in public meetings. I will not permit a member to participate when he or she is not adhering to this constitutional requirement. Therefore, any member who attempts to participate from outside of the precincts will be asked to leave the meeting.

I invite the Minister for Finance, Deputy McGrath, to make his opening statement.

I thank the Chair and colleagues for being here. I am pleased to be here with my colleague, the Minister, Deputy Donohoe, and our respective officials today to discuss the stability programme update.

As members are aware, the document was published in draft form on 23 April this year. In accordance with our legal requirements, the final version of the document was submitted to European authorities on 30 April. By way of background, the annual update of the stability programme is prepared each spring by my officials working with colleagues in the Department of public expenditure. It sets out my Department's best assessment of the economic and fiscal situation and outlook.

The legal framework requires forecasts for the next three years at minimum. The fiscal forecasts go out to 2027, while the macroeconomic forecasts once again extend out to the end of this decade. Following a rigorous process, the macroeconomic forecasts were endorsed by the Irish Fiscal Advisory Council on 2 April, which is a legal requirement.

It is important to stress that the SPU is purely a technical document. The numbers are prepared on the basis of the policy positions set out in budget 2024 with no new policy measures incorporated. The Government will formulate the broad parameters of its budgetary policy over the summer and this will be published in the summer economic statement. Before that, the Government will engage via the national economic dialogue, which takes place on 27 May, the theme of which this year is a more shock-prone world and the challenges and opportunities for Ireland. It is also important to highlight, due to a new set of economic governance rules at European Union level, that this is the last time we will be submitting a SPU document. Going forward, member states will be required to prepare and submit medium-term structural fiscal plans to the European Commission.

These plans, which will be endorsed by the Council of the European Union, will commit member states to an agreed net expenditure path and will be monitored through annual progress reports, which will replace stability programme updates and national reform plans. Ireland will publish its first medium-term structural-fiscal plan in the autumn of this year.

Moving to the substantive issues, I will say a few words about the economic outlook for Ireland. Despite the headwinds that have weighed on economic activity in recent years, namely the erosion of purchasing power due to high inflation and the associated tightening of monetary policy, the Irish economy remains in good shape overall. The labour market in particular has proved remarkably resilient, with employment exceeding 2.7 million people in the final quarter of last year, almost 330,000 up on the same quarter in 2019, just prior to the pandemic. As a result, almost three quarters of our working-age population are now in employment, a near-record high. According to the CSO, the unemployment rate in April stood at 4.4%, consistent with any reasonable estimate of full employment.

Looking ahead, some of the economic headwinds look set to ease, and this should support a pick-up in economic activity as the year progresses. Crucially, the energy price shock is now dissipating, and the pass-through from lower wholesale prices to retail prices has triggered a faster-than-anticipated decline in headline inflation. The headline rate of harmonised index of consumer prices, HICP, inflation stood at 1.6% in April, one of the lowest rates in the euro area. Indeed, the disinflation process has further road to travel, and this will boost real wages, real household incomes and, in turn, consumer spending and will result across this year in an improvement in living standards for the vast majority of people in Ireland.

Against this backdrop, modified domestic demand, my preferred measure for the domestic economy, is set to accelerate over the course of this year, with growth of 1.9% projected for the year as a whole. This is a downward revision of 0.3 percentage points from the Department's autumn forecasts, mainly on foot of weaker momentum coming into this year. As other headwinds moderate, modified domestic demand growth is set to accelerate to 2.3% next year. Headline inflation for this year is now projected to average just over 2%, consistent with price stability. Employment is set to continue to expand over the course of this year and next, albeit at a slower rate than last year. The unemployment rate, meanwhile, is expected to average just over 4.5% this year and next.

Turning to fiscal developments, my Department is forecasting a general government surplus of €8.6 billion for this year, the equivalent of 2.8% of modified national income. Underlying this is tax revenue that is expected to grow by 4.5% to reach €92 billion this year, broadly similar to the forecast published as part of budget 2024 last autumn. Of course, the fact that there are now significant headline surpluses in prospect over the coming years is very much welcome. It is a reflection of the fundamental resilience of the Irish economy and society to all the challenges we have faced and speaks to the success of the Government's carefully balanced budgetary strategy.

There are still vulnerabilities in our public finances, however. My Department estimates that just under half the entire corporation tax yield this year will be windfall in nature. In other words, these receipts are not linked to our domestic economy and could potentially be transient. If windfall receipts are excluded, there is an underlying deficit in the public finances. Last year, we saw what may be the first signs of a levelling off in this revenue stream: corporate tax receipts grew by around 5%, which is certainly a steady performance, but growth the previous year was almost 50%, so there has been a significant slowdown in growth. Managing the risks around corporation tax is a vital part of the Government's fiscal strategy. That is why we have decided to establish the future Ireland fund and the infrastructure, climate and nature fund. As members will be aware, I published the draft legislation for the establishment of these funds in March in order to allow us to invest these receipts to ensure we have the resources necessary to address future structural challenges while, at the same time, minimising the risk of using volatile windfall taxes to fund permanent spending. The select committee of finance completed its consideration of Committee Stage of that Bill this morning.

Turning to public debt, while we are moving in the right direction, our debt burden remains elevated: indebtedness this year is projected at almost €221 billion, or just over 72% of modified national income. For next year, our stock of debt is projected at €223 billion, or 69.7% of national income. The progress we have made in reducing our ratio of public debt is encouraging but we have much further to go, which underscores the importance of continuing to pursue a careful and sustainable budgetary policy.

The resilience of our economy and public finances over recent years has presented us with a window of opportunity. We can take action now to prepare for the future while also continuing to invest in our infrastructure, our housing sector and the productive capacity of our economy.

I very much look forward to our discussion over the course of the evening and to an exchange of views on the economic and fiscal outlook facing our country.

I am also grateful for the opportunity to be here to present the stability programme update and to speak to the expenditure dimensions of it. As members all know, this is an important point in the annual budgetary cycle. From an expenditure perspective, it allows us to take stock of the significant and continued investment in our day-to-day public services and our infrastructure. It also outlines, on a no-policy-change basis, the path for public expenditure over the medium term. It sets out a strong fiscal position as the Minister, Deputy McGrath, and I begin our preparations for the summer economic statement and then for budget 2025.

The Minister for Finance has outlined the continued strength of our economy, but we both acknowledge, notwithstanding this strong performance, that there are still many challenges to be addressed. The pressing need for more homes continues too, despite record delivery in that area, as does the desire for continued improvements in public services.

There are sustained external pressures on public services too, including from the ongoing war in Ukraine and our commitment to provide the necessary humanitarian support for people fleeing the war. The expenditure pathway set out in the stability programme update seeks to take account of such pressures by the inclusion of a contingency reserve over the period 2025 to 2027.

Due to the careful management of our economy and public finances over the past few years, from an expenditure perspective, the Government has been able to achieve the following four priorities. First is the provision of increased resources for core public services and for permanent increases in social supports, investing in quality of life and supporting living standards while, at the same time, meeting the challenges of the war in Ukraine and, of course, Covid. Second is the delivery of significant and essential infrastructure projects through our national development plan. Included within that, from this year to 2026, the Government has also utilised €2.25 billion in windfall receipts from corporate tax to assist in the delivery of the national development plan. Third, we put in place considerable temporary supports to provide assistance to our people and businesses in response to elevated inflation levels from 2022 right through to last winter. The final priority is to do all this while ensuring that our public finances stay in a sustainable position.

I have some further observations on each of those points. First, with regard to increased investment in our core public services for this year, overall spending will reach €97.1 billion. This includes core funding to support the delivery of a wide range of public services and enhanced infrastructure, including in health, education, housing and childcare, alongside supports to meet challenges driven by the pandemic and the war in Ukraine.

Second, the national development plan is the largest, greenest and most ambitious plan ever for Ireland.

In 2023, expenditure on the NDP was €12.5 billion, a significant increase over 2022, with almost a third of this funding going to the Department of housing. The result of this was that the overall number of houses delivered surpassed the Housing for All target, with 32,695 new homes completed last year. In 2024, capital investment will be over €13 billion, rising to €15.5 billion in 2026. To put this in perspective, capital investment stood at €4.6 billion in 2017.

On current expenditure trends, the fiscal monitor of last Friday shows that gross total expenditure to the end of April was up by 12.1% year on year, with capital spending up by over 53%. This reflects the investment set out in budget 2024, including enhanced social protection payments, increased staffing in key areas such as health and education to deliver front-line services and the additional social protection payment made in January this year.

Compared to the expenditure profile, overall spending is ahead by 1.5% or €436 million. Current expenditure is driving this, at €543 million or 2% ahead of profile, while capital is below profile by €107 million. The committee will be aware that the Government continues to face expenditure pressures in a number of areas that will require careful management during the year.

In 2023, we saw a general government balance of €8.3 billion, with a forecast of €8.6 billion for this year, rising to €10.7 billion in 2027. Against this backdrop, expenditure projections in the stability programme update are included in a technical, no policy change basis. The figures this year take account of the recent public service pay agreement and the voted expenditure amounts reflect the 5% growth rate anchor for core spending as set out under the medium term expenditure strategy in the 2021 summer economic statement. This is based on aligning voted expenditure with the trend growth rate of our economy.

In recent years, flexibility was required to take account of higher than anticipated inflation and this flexibility was reflected in our decision to increase the growth rate of public expenditure. Many of these challenges were external in nature. Since 2020, non-core expenditure, that is, expenditure that is temporary in nature, has facilitated our response to the impact of a range of external pressures. We started with Brexit and then had the pandemic and the outbreak of war in Ukraine, followed swiftly by soaring inflation. Separating out core and non-core expenditure has enabled funding to be provided for specific and temporary purposes capable of being withdrawn when no longer needed. With inflation retreating faster than expected and the pandemic hopefully in the past too, the careful phased withdrawal of these supports is under way. This is important to keep the public finances safe. In the case of Covid-related expenditure, total outlay has fallen from €15.4 billion in 2020 to an estimated €1.3 billion for this year. While a significant part of the non-core expenditure category has been unwound, risks remain. For this reason, we have included a contingency reserve within the overall expenditure ceiling for 2025 to 2027 of €4.5 billion. This will support the continuation of funding accommodation and social supports for, for example, arrivals from Ukraine.

The careful management of our public finances, while responding to many unforeseen external challenges, has helped our economy remain resilient. We now continue to help with today but also plan for the future. Over the coming months, the Minister for Finance, Deputy McGrath, and I will consider how we can best use the upcoming budget to support this work as we look to the summer economic statement.

I thank the Ministers for being here. It gives us a good opportunity to examine the stability programme update. Housing is the number one issue facing the country so I will seek clarity on the indicative allocation for housing. We know that €3.9 billion is allocated to the Department as a whole in 2024 and that will increase to €4.3 billion in 2026. However, a large share, approximately €1 billion, will go to water infrastructure. What will be total Exchequer expenditure for the building of social and affordable housing in 2024 out to 2027? I refer specifically to expenditure for building units, not acquisitions or any other type of delivery. Does that expenditure progressively increase over the course of the period the stability programme update covers? It was recently announced that the capital ceiling for the Department of housing in 2025 will be €180 million higher than the ceiling outlined in the NDP. How much of that additional funding will go specifically to building social and affordable housing? I am trying to get at how much will be spent on the actual building of the units, if the Minister has that information.

I only have some of the information to which the Deputy refers. I will have to come back to her with the detail. It is information that I know will be readily available to the Department of Housing, Local Government and Heritage and the Minister. I will endeavour to get it for her.

On the 2024 Estimate, of the total capital budget available to the Department of Housing, Local Government and Heritage is, as the Deputy said, €3.8 billion. Of that, €2.54 billion has been made available for the housing subhead. I will have to revert to the Deputy on the breakdown and how much of that funding will be allocated for the construction of housing as opposed to the acquisition of housing for social purposes. That information is not available to me currently but I will see if I can get it during the meeting.

The allocation of funding for that purpose for 2025 and 2026 has not yet been agreed. The 2025 allocation will form part of the Estimates discussion we will have with the Minister, Deputy O’Brien, in September and October. At that point, we will reach agreement on the allocation of funding for subheads such as housing and its construction and purchase. The figure for 2026 will not be available until the Government of the day puts together a budget. If, during the meeting, I can get exact information for the Deputy on what funding is available for the construction rather than purchase of homes, I will share it with her. If not, I will write to the committee providing it.

That may also apply to some of my other questions. All these issues have become more important as the Government is legislating to lock away €6 billion each year. This is likely to mean that in the coming years the Government will have limited space to increase capital spending on the building of social and affordable homes above what is already accounted for in the base. Another substantial source of financing for construction is the Housing Finance Agency lending to the approved housing bodies. This is not an Exchequer cost but it falls within the general government balance. The stability programme update provides for an indicative general government balance out to 2027. Housing Finance Agency lending to local authorities and the approved housing bodies, AHBs, currently stands at between €1 billion and €1.5 billion.

How is the Housing Finance Agency lending built into the general government balance projections? How much lending is projected and built in each year? Is Housing Finance Agency lending built into the general government balance for 2027? Are there are any other forms of non-voted expenditure for building social and affordable housing that are within the general government balance but off the Exchequer balance sheet?

I thank Deputy Conway-Walsh. The activity of the Housing Finance Agency, HFA, is included in the forecasts published in the SPU. As the nature of the agency's activity is to borrow or raise funds to support housing delivery through on-lending to local authorities, approved housing bodies, AHBs, and so on, the majority of its accounts are financial transactions and do not impact the general government balance. This is because on-lending is ultimately a movement of cash from one government entity to another. The HFA sees a reduction in cash and an increase of loan assets while the AHB or local authority sees an increase in cash, matched by a loan liability. However, once this lending is used by a general government agency such as an AHB or local authority to fund expenditure, it is recorded as a general government expenditure, negatively impacting the general government balance. Since the majority of the on-lending is to fund housing delivery, the expenditure tends to be gross, fixed capital formation.

In addition, the HFA impacts the general government balance by an amount equal to the difference between its receipts, interest received, and the expenses, interest paid, staff costs and operating costs in an accounting period. In a compilation of the general government forecasts for the SPU, a survey of general government agencies, such as the HFA, AHBs and local authorities is completed in order that forecasts will include planned expenditure linked to HFA lending. Officials in my Department survey general government agencies for a specific purpose, to fulfil a mandate to compile the general government forecasts and publish the aggregate level, as required by our legal reporting obligations. The method by which the data is collected and compiled mirrors practices in the CSO. Similarly, the CSO publishes at an aggregate level. Therefore, we cannot provide data at an individual level from a government agency.

On the impact of general government debt, as the general government accounts are on a consolidated basis, any inter-government lending or borrowing is subject to consolidation. However, borrowing by the HFA from the private sector will have an increase on general government debt. I know it is quite technical in detail.

We have a range of different sources of funding for social and affordable housing, cost rental and so on, including through the Land Development Agency, LDA, where there is capital capacity of about €5 billion of funding for the development of such homes. We have HBFI. We have ISIF, which is focused on private development, but that yields social and affordable housing as well in the form of Part V. We can prepare a note of the different treatment, from an accounting point of view, of the borrowing and the associated spend on each of those different arms that are contributing to housing output if that would be helpful.

This is our final SPU. Next year, as the Minister indicated, it will be replaced by the new progress report in April of each year under the EU fiscal rules. The SPU states that the medium-term fiscal plans will commit member states to an agreed net expenditure path for a five-year period and the plan will subsequently be endorsed by the Council of the European Union. It states that, once endorsed by the Council, it is not generally possible to deviate from the agreed net expenditure path unless a new government takes office. I find that quite extraordinary. The SPU lays out in stark terms how restricted member states' national governments will be. It goes on to state that a member state government cannot alter the net expenditure path once it has been endorsed by the Council. Will that mean that Ireland, under the new EU fiscal rules, which the Government obviously supported, in order to increase or decrease net public expenditure from the five-year plan, will have to have an election to deviate?

Even within the net expenditure rule, you can spend however much you want, but you have to raise revenue to match it. It is a binding rule. It is a net expenditure rule. You have to set out your medium-term path for the duration of the parliament of that country. In the case of Ireland, it is five years. There is the opportunity for a reset following a general election, when a Government is formed. That is binding. This was agreed at European Union level because I think it is important that we have discipline across the European Union when it comes to fiscal policy. In the lead-up to the summer economic statement and, ultimately, the budget process in the autumn, the Minister, Deputy Donohoe, the Government and I have to consider carefully what is in our view an appropriate net expenditure path for Ireland, given that, under the economic governance framework, which is agreed at EU level, there is no longer any distinction between core or non-core, current or capital or temporary or one-off expenditure. It is all treated the same.

We have considerable work and much thinking and planning to do about what we regard as being an appropriate net expenditure path for Ireland. It is quite technical. The net primary expenditure means government expenditure net of interest expenditure, discretionary revenue measures, spending on programmes funded by the Union, cyclical elements of unemployment benefit expenditure and other expenditure items outside the control of Government. Both Departments need to work through our assessment of the make-up of overall projected expenditure for this year and what is an appropriate basis to develop a net expenditure rule for Ireland for the coming years. There is, of course, as the Deputy acknowledged, the opportunity for a reset following a general election.

It would have to be done collectively. Is that not giving away our power regarding how we could respond? We are a small, open economy. If something happened in the US, with our overdependency on multinationals from the US, I cannot understand how we would be able to respond in the way we would need to if we are so restricted by this.

It can be by agreement for an individual member state. Bear in mind that the rule is a net expenditure rule. If a government wishes to respond and spend additional money in a particular area, provided it can be funded by additional revenue-raising measures, the net expenditure rule is still maintained and respected, so there is in-built flexibility as well, which is fundamentally the net basis of the rule.

I welcome all our guests. It is great to have them here to have a chat about the financial matters that are most pressing. Following on from the discussion about housing, one of the biggest failings in housing at the moment relates to the fact the private sector is not functional, and it will not be functional until we step in to help it become functional by providing it with funding or resources in order that we can get people back building houses. I was talking to people in the building end of the sector today and they pointed out that politicians were saying they can build houses for a certain sum, but the builders who are trying to build them cannot do so at the cost at which they need to be built to make them accessible to people who want to get a mortgage. We are talking at the moment about social housing, affordable housing and so on, but affordable housing is not working in most of the country. It will work in the cities and in, for instance, Oranmore in Galway and the so-called MASP - metropolitan area strategic plan - areas such as Claregalway, but it will not work in Ballinasloe or Tuam, which is the largest town but in which a large housing estate has not been built since 2008 or 2009. There is a huge gap in the market. We are falling over ourselves about targets, but we are not following the target of private housing. How can we ignite that market and get it working again in the context of capital and financial measures such as taxation?

I might comment on the expenditure element of that. Over the past two years in particular, the State, through various expenditure programmes, has stepped in to facilitate the better functioning of the private sector in the delivery of homes, and there are three main ways in which that is being done. First, there are the various funds the Minister, Deputy Darragh O'Brien, has in place to help deal with some of the cost involved in the delivery of new houses, apartments and infrastructure. As the Deputy will be aware, he has a fund available for which local authorities and the private sector make bids to, in turn, allow the delivery of housing and apartments in parts of the country where we accept that without Government intervention, more homes would not be built.

Second, there is the help-to-buy scheme, which we have maintained at a reasonably strengthened level since the early days of the pandemic, again to give the private sector a greater level of assurance that a deposit will be available for homes that are built within certain price ranges.

Third, there is the first-home shared equity scheme, which is a response from the Government, mainly enabled by the work of the Department of Finance, to again help with the funding of mortgages. That, in turn, will give greater assurance that homes in a certain price range will be built.

I fully accept we have far more progress to make in the delivery of private and affordable housing, as I acknowledged in my opening statement, but the strength of what we saw in the first quarter of this year, with the numbers of planning applications, new homes having been started and homes having been completed, gives me a degree of confidence that these measures are having a very positive impact on supply. I know that whenever we deal directly with the construction sector, as I do regularly, it will always make the case for more support, but in the engagement I have had with members of the sector, they have acknowledged that the various schemes that have been put in place, especially the help-to-buy and first-home shared equity schemes, are playing an important role in enabling the private sector to build more homes.

I accept that progress is being made and I fully support the help-to-buy scheme, but analysis will show the numbers of, for instance, houses that have been built under the shared equity scheme and where they have been built. County Galway is the second largest county but there is only one private housing scheme within it. When any other developer is buying a site or looking for one to develop, he or she will go to the local authority or the approved housing bodies to see whether a deal can be done to sell it to them because the developers cannot get the funding at the right price to help them deliver. I am finding that someone who is working and does not meet the threshold for social housing is left renting at a high price and cannot get somewhere to live.

I am going on the experience of County Galway but I know this is also happening in Mayo and Roscommon, and I know from talking to builders throughout the west that something is amiss, because it is not happening there. When we talk about spending money and the schemes we have, I would like to see more data on what numbers are being developed in that regard, as opposed to social housing. We are building social housing at a pace at the moment, and I credit the Government with that, but we are leaving a cohort of people behind. Apartments in cities are not the housing that is needed in regional Ireland. That needs to be tackled.

When we talk about spending money on infrastructure, the pace at which we build and the processes we go through are leading to increased costs because of inflation. Under the rural regeneration scheme, for instance, the Department of rural affairs is doing great work with projects but the cost of implementing them, which may have been allocated money four years ago, has doubled. How are we taking that into account in what we are delivering and in the case of, for example, a section of road to be delivered and the cost of that now compared with five years ago? Part of the problem is that the processes that are in place are leaving us languishing without getting work done, and that is adding to inflation. Does Deputy Donohoe, as the Minister for public expenditure and reform, have the appetite to look at the processes by which we are seeing approvals across the board and stagnating progress on getting projects to construction?

I accept the importance of the Deputy's point, and only earlier in the week, I presented a memorandum to the Government updating it on the delivery of the national development plan. It showed that cost-price inflation over the past two years has been very considerable. While the rate of increase has slowed in recent months, it is just a slower rate of increase as opposed to a decrease or a reversal.

As for how we are aiming to deal with the issue the Deputy identified, first, we have made changes to our processes to give Departments a higher degree of autonomy to make their own decisions on projects below a certain value. Many of the changes we have made to the public spending code, now described as infrastructure guidelines, took effect on 1 January of this year. The feedback I am getting from Departments is that it is playing a positive role in dealing with the issue the Deputy accurately described.

The second action relates to the allocation of a further €2.25 billion between this year and the next two years.

Much of that funding will be used to try to guard against a risk in the case of projects we all want to go ahead with. The funding will be in place in Departments to still allow those projects to go ahead even when the final cost comes in at a higher level, due to no fault of anyone. It could be due to the big forces that are happening with inflation at the moment. Those are the two ways in which we are looking to deal with it. My sense, from dealing with the Office of Government Procurement and from dealing with the Departments that have larger capital spending programmes, is that in many cases, we have been successful in managing those risks but not in all. I certainly am alive to the issue to which the Deputy has referred.

If I can I add a point, the Deputy makes a fair point about the reality that in parts of the country, the cost of building a new home is such that the price that would have to be charged is more than the market in that area is able to support. That is a challenge. The question is how do we calibrate the supports introduced by the Minister, Deputy O'Brien, funded by the Minister, Deputy Donohoe, to help to bridge that gap and overcome the challenge. It involves the different inputs when it comes to building new homes. Have we enough zoned land and is it serviced? Can we continue to support the work of Uisce Éireann in terms of their multi-annual capital plan in order that water and wastewater services are provided for land?

Funding costs have been a real challenge in recent times, particularly given the interest rate cycle and the monetary policy decisions. The indications are that this may begin to change over the period ahead, which will help. We have come through a period of exceptional construction materials inflation, as the Deputy knows, and it has made that viability challenge outside the main urban centres all the more acute. That is why the schemes and the supports we have are more important than ever.

Labour is an important input. We are making real progress on apprenticeships and the numbers are growing very considerably. That is also an important factor and another is the reform of the planning system. Schemes in many parts of the country that are currently stuck with An Bord Pleanála are beginning to come through. While that does not in and of itself resolve the viability challenge, some of the schemes are viable but are stuck in the system. We have provided significant additional resources to the board and we are seeing now the flow through of more planning appeal decisions, which will certainly help.

While all of those inputs are important, the Deputy has highlighted a key issue. The cost of building is high and there is a viability gap in parts of the country. We have to continue to see what we can do to bridge that viability gap. While we are helping the purchasers through the interventions in place, we want to see greater private supply. We are doing a lot on social housing and will continue by doing more. We see affordable housing beginning to come through in significant numbers but we need private supply, that is, homes for sale in the private market to buyers without intervention and without support. That is an area where we have to continue to consider what more we can do to make developments viable.

I thank the Minister.. It is positive to hear of the creation of autonomy within Departments and giving them their head to make decisions. They must of course be responsible decisions. The Minister, Deputy McGrath, mentioned Irish Water. It is one of the biggest catalysts we need to support to provide the serviced sites we need, for both industry and housing. It needs more support and more funding to make sure the existing demand is met within a reasonable timeframe. I thank the Ministers.

I welcome both Ministers and their officials to the committee. I appreciate the responses up until now. The Minister, Deputy McGrath, and I touched on this point earlier as we dealt with the legislation in the finance committee but in its assessment of the stability programme update, the Irish Fiscal Advisory Council's report in 2023 stated:

The Government should extend its fiscal forecasts in line with its macroeconomic projections. This would enable the Council to better assess medium-term debt sustainability and it would help to deliver credible plans on how we tackle medium-term challenges such as climate and ageing.

The Government decided not to do that, with fiscal forecasts only being given up until 2027. Why did the Minister, Deputy McGrath, ignore the commentary and advice of the fiscal council again this year?

I thank the Deputy. The legal requirement is to provide the forecasts for the current year plus three, so we have done that up to the end of 2027. The SPU is governed by EU-wide rules. As the summer economic statement, SES, is not, we are now examining how much further into the future horizon we can go as part of the summer economic statement. I have asked my officials to work towards a longer-term horizon in the fiscal forecasts for the forthcoming summer economic statement. Both Departments are working on that as we speak. That is the intention and we are working through that at the moment in the context of the SES.

That also will be part of the new five-year medium-term plan that will be laid out in the autumn. It will incorporate that time horizon as well, which is why both Departments have a lot of work to do in respect of the SES first, then of course the budget and, as part of that, the medium-term fiscal plan which will have to look five years into the future using all of the key fiscal metrics.

We are working through the level of detail at the moment. It is still in the early stages. The SES will be complete by June or into July in the normal manner and we are working through whatever level of detail we can provide within the SES. We will provide as much as possible in terms of detail and projections over which we can stand.

I anticipate the fiscal forecast that will go further into the future in the SES will involve those key metrics, which certainly would include the general Government balance, the Exchequer balance, expenditure and taxation under key headings. The precise level of detail and aggregation, however, is something we are working through at the moment.

IFAC also noted that the estimated costs incurred from the defective concrete block grant scheme were only provided in the given year and should have been provided over a longer-term horizon. Can the Minister, Deputy Donohoe, clarify to the committee whether this has been done now in the Stability Programme Update 2024? Can he provide the projected cost factored into the base in each of the years over the fiscal forecast provided?

Table 10 of the stability programme update shows the budgetary projections out to 2027.

It provides non-voted capital expenditure in each of the years until 2027, which includes, albeit not exclusively, transfers to the future Ireland fund and the infrastructure and nature fund. Can the Minister clarify the items that make up the remainder of this envelope? When we take 2027, for example, if we strip out those two funds, there is about €1.1 billion in terms of non-voted capital expenditure. Where does that non-voted capital expenditure fall?

I am particularly interested to learn if it is money for the Housing Finance Agency or something of that nature.

I will go on to the next table, which is table 12 on page 30 of the stability programme update. This deals with the technical assumptions on expenditure for the period until 2027. It gives core year-on-year increases. I note what the Minister said about this being the last year we will see core increases presented in this fashion, given what the Commission now requires. However, it does provide us with a core year-on-year increase figure for this table. Can he provide a breakdown for each of the years of these increases with respect to existing levels of service, increased NDP allocations and new measures? I assume that existing level of service, ELS, is still being calculated as 3% of core current expenditure. Can the Minister give us some detail on that?

That work is being done at the moment. Getting into what the ELS will be and what the provision will be for new measures will form the work of the summer economic statement. I hope we will be in a position to give the Deputy an indication of that clearly for 2025. That kind of information is not normally included in the SPU.

It is what we have used. However, we are reviewing that at the moment. It is prudent before beginning every Estimates process to look at what the learnings are from the assumptions that were made regarding ELS from last year's Estimates process. My Department is reviewing that at the moment. Again, that will then feed into the estimate we make regarding the level of ELS for next year.

Okay. That is ELS and maybe we will circle back to that again, given that the Government significantly underfunded health in last year's budget. However, I will come back to that issue again. In terms of the core year-on-year increase, is the Minister able to identify the capital expenditure increase for each of the years from 2025 to 2027, inclusive, outside of the windfall capital? Does the Minister have that figure?

We have laid that out until 2026. That is included. In terms of the non-windfall capital expenditure, it goes to €13.6 billion and then to €14.2 billion in 2026. If you add the windfall capital allocations for those two years to that, it takes us to a total figure of €14.35 billion, rising to €15.45 billion.

Then there is windfall capital, which is a separate line. Windfall capital does not get covered in the Minister's core expenditure rule and therefore tries to save his blushes when he breaches the 5% spending rule again this year for the fourth time. Where does that sit? Does that just sit in addition to it?

We have laid out clear reasons as to why the 5% spending rule needed to be changed or rather, not changed but why the rule is there and why we have been unable to meet it in recent years. We have also demonstrated our intent to try to move back to it. All of this will of course be up for revision when we put together the plan the Minister, Deputy McGrath, referred to a moment ago, when we have to lay out what will be the net expenditure path over the next number of years.

As I was saying, the Minister is consistent in that he has never reached his own rule. I would criticise the Minister if he tried to do that. Moreover, I would criticise him again because we have the housing crisis because the Government is not investing basic sufficient capital to build social affordable cost-rental homes. As for the numbers that underpin this stability programme update, the number may look large in terms of core year-on-year increase but of that €4.7 billion or €4.5 billion, at least €3 billion of that is ELS. About half a billion euro is capital, which is across all Departments and that then leaves you the remainder for new measures. That level of additional capital simply does not cut it and we have been here before with the Minister. Unfortunately, the numbers in respect of homelessness are testament to what I have been saying for many years about the Minister's plans.

Going back to windfall capital for next year, some €750 million has now been allocated to the Departments.

We do know how much is going to the Department of housing at the minute; we just do not know how much is going to construction because a large portion of the capital for the Department goes to Irish Water, for example. The Minister, Deputy McGrath, talked about the importance of both bricks and mortars and the services as well. Is it the case that we do not know the detail of how much goes there?

We have some understanding of what the detail is going to be. We know where funding is going for this year for different levels below the overall heading of housing. As I said, I am happy to come back to the Deputy with a bit more detail on that. However, it is not yet fully confirmed regarding what, for example, will be going to acquisition and to construction for the simple reason that it will form part of the Estimates process.

On housing, from a factual position, the target numbers for affordable housing and cost rental were not met. Social new-builds were under-provided for as well. The Department used some of those resources to make a large number of acquisitions. On whether the targets are met for next year, in the Minister's view, are the capital headings sufficient to meet the targets that are laid out in terms of Housing for All and maintain the level of acquisitions that happened last year?

I ask because the money was moved from one to the other. When we look at the stability programme update, we are looking into the future. The Minister's party has outlined the ambition to have 250,000 new homes built over a period of five years and that is the kind of number is everybody has been saying is required to meet the need. However, unless they are mostly private homes with no real increase in social, affordable and cost-rental housing, the Government is not going to meet the target under these capital ceilings because these ceilings do not increase to allow an increase in the level of social, affordable and cost-rental housing construction. Does the Minister have any understanding of the commitment his party leader gave to have 250,000 homes built, with respect to how many of them will actually be public, meaning social, affordable and cost-rental housing? Is it just the case that the Government is hoping the private sector continues to pick up that remainder?

I expect the private sector, with the momentum there at the moment, will be able to deliver a larger number of new homes in the time ahead. That should especially be the case if we begin to see an improvement in the interest rate environment across the next number of years and begin to see the issues that have been created by cost price inflation begin to moderate. That is a very reasonable expectation, particularly in light in of some of the trends we saw in private housing output towards the end of last year and into the start of this year. The Deputy asked me whether I believe the current NDP ceilings are sufficient to deliver the current Housing for All targets. I do. He also asked about acquisition. Last year's budget had sufficient flexibility within it to deliver a higher level of acquisition. I therefore expect as I move into this year that, given the budget has increased, there will also be flexibility open to the Minister, Deputy O'Brien, to engage in acquisitions if he believes that is appropriate. My preference, and I believe it is the Minister's, is that over time we can reduce the role of acquisition and instead it can be the delivery genuinely of new social and affordable homes rather than doing it through acquisition. If we are in a world in which housing output is increasing and beginning to accelerate in its rate of increase, with us seeing more new homes being delivered, then that has to lead to a point at which we can make less use of acquisition than we have in recent years. That is a policy for the Minister for this year and for next.

Under the Minister's party's plan for the 250,000 homes, is the party planning to ramp up social, affordable and cost-rental homes? While private supply will increase, which I accept and agree with, unless the Government is keeping the numbers relatively stable with small increases, it will not be doing that under these capital programmes. Of the 250,000 homes, for example, has the Minister any notion how many of them are affordable, cost rental and social?

No, that has not been determined yet. The reason is the ESRI is doing a piece of work for the Government at the moment to give us some perspective on what housing output will be and what the need for homes will be across the coming years. Then the Government in its entirety will make a decision on revised housing targets for the next number of years. As part of that and coming out of it, we will then have the information for what the private sector will deliver and what the State will deliver. I have always acknowledged, as has the Government, that while the increased number of homes we are delivering is positive, it is of course evident we need to build even more homes. We have accepted exceeding those targets is positive, but we need to look at whether those targets can be increased further. That is what the Taoiseach was making reference to.

Go raibh maith ag an Teachta. Mar sin, tá gach duine tar éis a gceisteanna a chur. That concludes the session. Buíochas libh araon, a Airí, agus leis an bhfoireann. I thank both Ministers and their officials.

We will go into private session to deal with a number of housekeeping matters.