The national debt stood at more than €219 billion at the end of last year, equivalent to €44,000 for every person in the country, according to a new report from the Department of Finance.
The sharp increase in public indebtedness, driven by the profound effects of the Covid-19 pandemic on the economy, is thought to have pushed the total debt pile to 108% of Modified Gross National Income (GNI*) last year, an increase of 12%.
That debt-to-GNI* figure is expected to grow further to 115% this year because of the changes announced in the budget, or €47,700 for every man, woman and child here.
However, it is not all bad news, with the cost of servicing the national debt falling due to the decline in the cost of borrowing internationally thanks to central banks flooding the market with cheap money.
The report suggests that the public finances can absorb the current and rising levels of public indebtedness, driven higher by a deficit of €19 billion last year.
Speaking on Morning Ireland, Finance Minister Paschal Donohoe said this was possible because the country entered the crisis with the public finances in good shape.
He said a tipping point would come if from a health point of view the spread of the disease had such an effect on public health that it had a profound effect on the economy for years to come.
“From the economic point of view what the tipping points would look like would be if we were to have levels of unemployment that were very high for very long that in turn effect the ability of our economy to grow, that in turn would effect the ability of us to sustain the level of debt that we now have,” he said.
“But we are not going to get to that point,” he added.
“We went into this crisis with out public finances in good condition and due to that and due to the support of the European Central Bank, the additional debt that we have taken on to keep people in work, to maintain their income, to beat this disease, is a level of debt that is sustainable for now.”
He added that to deal with the level of debt we would have to contain and beat the virus and then get people back to work.
Mr Donohoe said ultimately decisions about whether taxation needed to be increased or not depend on how big a state we want to maintain for the medium term or beyond.
“We’ve massive increased the size of our state to deal with this disease, to deal with an emergency, and if we want to keep the state permanently bigger for longer, then there will be costs involved in that.”
He added that the Commission on Taxation and Welfare will advise on options on how that could be paid for in the future.
But he also said that the overwhelming priority for now is to beat Covid-19 and get the country back to work.
The Annual Report on Public Debt in Ireland 2020 says that when the pandemic has passed, it will be important to put the debt-income ratio on a downward trajectory.
It claims this will reduce the vulnerability of both the Irish economy and the public finances to future shocks.
It also states that there are several structural features of Irish debt that go in our favour, including a long maturity profile.
Ireland’s debt also has a large share of fixed-rate debt instruments and the country enjoys positive ratings from credit rating institutions.
Nonetheless, the report also points out the importance of keeping the debt-to-income ratio as low as possible over the medium term.
This, it says, will reduce the vulnerability of Ireland’s economy and public finances.
Speaking to the media this afternoon, the Minister for Finance said the new taxation commission would have broad terms of reference.
But he said the 12.5% rate of corporation tax will not be changing under this Government as it forms a very important element of the country’s overall competitive offering for international and domestic employers.
He also said that it is very likely that we will end up with a larger role for the Government in different parts of our society, once the pandemic ends.
But he said the size of that state is still not clear and therefore it is also not clear what role taxation will have to play.
Mr Donohoe added though that he, the Taoiseach and the Tanaiste had all ruled out tax increases during the crisis as this would have an impact on efforts to get people back into employment afterwards.
However, he also said that when the country gets to the point of jobs and income growing again the Government is committed to bringing the finances back to a credible place.
Mr Donohoe said that he thinks that when progress is made in beating the virus, there is a level of savings and resilience in the economy that will allow a strong recovery to be delivered in the second half of 2021 and into 2022.