Covid spending to be cut before October budget 

Minister for Public Expenditure Michael McGrath: Committed to unwinding pandemic spending as more people return to work. Picture: Gareth Chaney

Covid spending is to be scaled back in the months before October's Budget, but up to €5bn of pandemic-linked spending will be carried into 2022.

At the National Economic Dialogue today, unions and public sector groups will be warned that Covid spending will be reduced in the coming months. Ministers have already been told that their Covid budgets will be wound down as work on Budget 2022 gets underway in the coming days.

Government sources say Public Expenditure Minister Michael McGrath remains committed to unwinding pandemic spending as more people return to work. Last year's Budget had pledged €12bn for Covid-linked spending, but this has escalated to €15bn. Next year's budget commits €4bn, but ministers concede this may be closer to €5bn.

Any spending increases, such as the €4bn for health pledged last week by Tánaiste Leo Varadkar, will have to be funded by either tax increases or cuts from other spending.

Mr McGrath has been briefing the coalition party leaders ahead of the Summer Economic statement which is being finalised ahead of publication in July. One briefing was described as "a sober assessment" by Taoiseach Micheál Martin.

It is understood that the statement will, however, predict a strong rebound for the economy in the second half of 2021 as unemployment eases and spending on supports is wound down.

Meanwhile, business group Ibec has said the huge cost of the Covid-related health and economic measures will reduce opportunities for any new spending or tax cuts in the years ahead but said the country can avoid a return of the austerity measures imposed a decade ago.

In its latest Quarterly Economic Outlook which forecasts an increase in GDP of 6.5% this year, Ibec says fiscal discipline is needed to ensure funds are available to address longstanding issues such as housing, infrastructure, population ageing and climate change.