“The days of cheap financing are over,” warns Paschal Donohoe, promising to cut government debt

The government is aiming to shape next year’s budget in a way that avoids adding to the price pressures that have already pushed inflation to a 40-year high, Finance Minister Paschal Donohoe says.

r Donohoe warned at a conference on Friday that the budget could not “absorb all the price shock” households are facing because it risks fueling further inflation and taking on more debt as lending rates start to rise.

“The days of cheap finance are over,” Mr. Donohoe said at the annual Economic and Social Research Institute (ESRI) Budget Conference.

“We will aim for the lowest level of borrowing required to respond to the diverse developments and strains in society and government,” he said.

“We will of course continue to recognize the cost of living challenge and continue to help, but overall we need to prepare and then deliver a budget that does not by itself add to the inflationary pressures that are clearly underway now.

“Fiscal policy itself must not become part of the problem.”

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He said the government will seek “further reductions in the debt-to-income ratio” next year while trying to break away from reliance on corporate taxes.

He called for a “perspective” on spending as the economy is no longer in pandemic mode.

The European Central Bank said this week that it would raise interest rates by 25 basis points in July, with a larger hike possible in September.

The national debt is 96.5 percent of national income, below the eurozone average, but the government is targeting a ratio of about 80 percent by 2025.

Meanwhile, inflation hit a 38-year high of 7.8 percent in May, or 8.2 percent according to the EU’s harmonized measure.

Mr Donohoe warned that higher inflation is likely to continue, although not “at the rates we are seeing”.

“There are clear signals that an economic regime change is now taking place.”

The government is currently laying the groundwork for the budget, with the summer economic statement due to be released “in the coming weeks”, Mr Donohoe said.

In a study published at the conference, ESRI advocated linking Jobseeker’s Allowance to applicants’ past earnings, although it warned that doing so would come at a cost and could reduce incentives to work. “The days of cheap financing are over,” warns Paschal Donohoe, promising to cut government debt

Fry Electronics Team

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