2023 Annual Report on Public Debt highlights improving position

This week, Minister Michael McGrath published the Department of Finance’s seventh annual assessment of public indebtedness in Ireland.  There were several positive aspects to the report including the fact that Ireland is running a General Government Balance of close to 3% of national income and that gross nominal debt has fallen from its peak of €236 billion in 2021.

However, some other aspects of the report highlighted how debt per capita is high, yet the debt service burden has eased in line with EU norms. The report also mentioned that, although the debt-to-income ratio remains on a downward trajectory, several recognised structural shifts will provide serious obstacles over the next few decades. 

The key risks for the near, medium, and future were outlined in the report. Corporation tax and the re-pricing of global debt were mentioned within the known risks, where global debt was highlighted as record high and deficits in many advanced economies have presented notable issues. 

Within the known risks, demographic change was shown to have an adverse effect on the labour force, resulting in decreased savings, while the risk of de-globalisation highlighted slower productivity growth and higher interest rates, further depleting global savings. However, other known risks such as decarbonisation and digitalisation showed more positive impacts on debt dynamics such as higher productivity which will in turn increase tax revenues, and a shift from a ‘brown’ to ‘green economy’. Minister McGrath acknowledged these “4Ds” and reiterated his plans for preparing legislation for the establishment of two longer-term savings vehicles: the Future Ireland Fund and the Infrastructure, Climate and Nature Fund, which will assist with financing structural challenges in the future. 

Commenting on the report as a whole, Minister McGrath stated that “a significant portion of public debt will be exposed to higher interest rates in the coming years”, adding that “the tax base is relatively narrow, and the public finances remain exposed to a shock to corporation tax receipts; product- or sector-specific shocks could potentially affect income tax receipts also.”