We need to ‘pull down’ government spending, Paschal Donohoe says

The Government needs to “pull down” its rate of public spending, Finance Minister Paschal Donohoe has said.

The Fine Gael minister said it needed to “change gear” on spending as the rate of inflation in Ireland continues to fall.

Inflation stood at 1.7% as of July, but was at almost 5% for food as the cost of items such as beef and butter increase.

People have highlighted how they are struggling with the cost of living in Ireland, particularly with food prices, despite a general downward trend in the rate of inflation.

The Budget Day package, set to be announced in the Dail on October 7, will be worth 9.4 billion euros and will not be accompanied by a cost of living package as it has in previous years.

Speaking on Friday, Mr Donohoe said he and Public Expenditure Minister Jack Chambers would look to end one-off supports from such packages and focus on more permanent, targeted measures.

“Minister Chambers and I will look at how we bring to an end the supports of the past, but go back to what we used to do in the past as well, which is that every single budget has brought forward measures that are permanent, that we believe we will continue to be able to afford, and will be more targeted.”

Mr Donohoe said they would also work on a new spending rule to be announced later this year.

The 5% limit, set by the previous government, aims to avoid major ‘giveaway’ budgets and limit spending.

The budgetary watchdog has criticised repeated breaches of this rule and said that while it put money back in people’s pockets, it has also likely added 1,000 euros to a typical household’s costs.

Mr Donohoe defended breaching the spending rule and said it would have meant “we wouldn’t have been able to help during the pandemic”, or when the cost of living “went through the roof”.

“I really don’t think anybody would be praising the government or myself for good economic management if we’d done that.”

He said they would be consulting with Taoiseach Micheal Martin and Tanaiste Simon Harris on a plan on Ireland’s public spending over the next number of years, which will be unveiled “around the budget”.

“Myself and Minister Jack Chambers, who will be doing the budget together, have acknowledged that the rate of increase in current spending does need to moderate. We need to pull it down,” he told RTE Radio.

“If you look at where we are during the year, it now stands at just over 6% at the end of August, which is a significant reduction in the rate of growth since the start of the year, and below where we have been in other years.

“When we put together Budget 2026, given that we’re looking to invest so much in our country’s future, 112 billion euro in the next few years, we do need to ensure that we change gear a bit now in current spending, because inflation has come down by so much.”

Mr Donohoe also spoke about Ireland’s national debt, which stood at 218 billion euros at the end of 2024, around 15 billion euros higher than before the Covid-19 pandemic.

The debt, which amounts to 40,500 euros per person and is high compared to other advanced economies, will be exposed to higher interest rates in the coming years.

Mr Donohoe said challenges to the Irish economy – such as ageing demographics, de-carbonisation and US President Donald Trump’s tariffs – will impact the evolution of public debt and finances.

“For this reason, as reiterated in the Summer Economic Statement, the Government will target headline budgetary surpluses and will continue to capitalise the Future Ireland Fund and the Infrastructure, Climate and Nature Fund to help mitigate the risks to the public finances posed by these challenges,” he said.