The Summer Economic Statement and the National Development Plan
Today’s Government decisions represent a bold move to address Ireland’s housing and infrastructure shortages. However, this approach risks undermining the progress made to date on the public finances and on environmental goals.
Today was a significant day for Irish budgetary policy with the publication of two important framework documents: the Summer Economic Statement (SES) and the National Development Plan (NDP). These policies were released amid significant political and economic uncertainty caused by transatlantic trade tensions, a faltering Government housing plan, and ongoing cost-of-living pressures.
Summer Economic Statement
The Summer Economic Statement, published annually in June or July, defines the ‘guardrails’ for the upcoming Budget. It sets a limit on total expenditure and breaks this down by current and capital. It also defines the size of the net tax package – i.e., the amount that will be ‘given away’ in tax cuts, reliefs, and exemptions, less any tax increases.
This year’s plan is remarkably expansionary, given the risks to the economy. Total expenditure is forecast to increase from €108.7 billion to €116.6 billion. Meanwhile, a net tax package of €1.5 billion will be accommodated. This tax package is €300 million higher than previously forecasted and may be designed with some substantial tax measures in mind, such as a VAT reduction for the hospitality sector or perhaps the provision of tax reliefs on residential development.
The Department of Finance models three different scenarios for how such a plan could impact the exchequer balance – i.e., the comparison of the central Government’s expenditure and revenues. These are a baseline scenario, a scenario where corporation tax receipts stagnate, and a scenario where they decline to 2020 levels by the end of the decade. Under the latter scenario, the plans above will result in a small deficit being run in 2026. This would eventually turn into a very large deficit of approximately €30 billion by 2030. In the document, the Government effectively reserves its right to amend its plans ahead of the budget if the EU-US trade conflict escalates.
The Government plans for €19 of the €116.6 billion to be capital expenditure – primarily focused in the areas of housing, transport, health and education. This aligns with the medium-term policy set out in the National Development Plan (see below for more details on this).
These figures allow for current expenditure to increase by €5.9 billion. A significant portion of that money – perhaps 40% – will be used to meet ‘existing levels of service’ (ELS). ELS costs are the costs of factors external to Government policy, such as the impact of an aging population on health and pension costs. The remainder will be used to top up social welfare rates and boost the provision of public services.
National Development Plan
The National Development Plan is the Government’s multi-annual budget for capital investment. It sets out limits on capital expenditure for every Government department over the next five years. The policy contains a very clear focus on infrastructure delivery.
Large increases are to be allocated to the Department of Housing, which will see its annual capital budget increase immediately from €4.6 billion to over €7 billion. This includes a large allocation for water and wastewater infrastructure. There are also significant increases planned for the Department of Transport, primarily to accommodate very large projects such as the Metrolink in North Dublin. That Department’s capital budget will rise to over €5 billion per year by the end of the decade.
Separate to the above, the NDP contains a commitment to inject an additional €10 billion of equity into public bodies involved in the delivery of infrastructure. Over half of this will be directed to Eirgrid, ESB Networks and Uisce Éireann later this year. The remainder will be allocated in the coming years as needed. Because this money is characterised as an equity investment, it is accounted for differently to most of the rest of the projects in the plan.
This increased ambition is partly accommodated by running a more expansionary policy than previously forecast. Capital expenditure will run at 5.4% of national income in 2026 and 2027, compared to between 4.5% and 5.1% in the 2021 NDP.
However, it is also partly facilitated by downgrading other priorities. Climate and environmental policy will bear the brunt of this trade off. There is little to no growth forecast in the capital budget of the Department of Climate, Environment and Energy, despite massive policy demands in the areas of home retrofit and the development of new technologies such as biomethane and district heating. In fact, the Government’s National Retrofit Plan envisages an investment need in home retrofit of €1.25 billion in 2028, but the entire 2028 capital budget for the Department responsible for delivering that plan is just €1.1 billion.
Environmentalists will also be concerned that the Infrastructure, Climate and Nature Fund, previously ear-marked for projects such as the retrofit of public buildings and investment in biodiversity, has now been in large part channelled towards the water infrastructure programme and Metrolink.
Conclusion
Policymaking is all about confronting trade-offs, and those trade-offs become particularly stark when it comes to setting budgets. The Government has clearly taken a bet on directing its fiscal firepower at our shortages of housing and infrastructure, but this may come at the cost of higher emissions and shakier public finances. As they break for the summer, Ministers will be hoping and praying that their bet pays off not just for the economy, but also for the future success of the coalition.
© PA Team@ Drury 21/07/25.
