Latest: Finance Minister defends halving rainy day fund

Minister Donohoe said it is important to strike a balance.

He said: "This is a different level of contribution than was originally planned and we are making this different level of contribution in an understanding of some of the additional needs that we are now facing.

"We have to ensure that as we allocate funding, it is going into projects that make long-term economic value for our country."

Update - 1.50pm:The Finance Minister, Paschal Donohoe, has published the Government’s Summer Economic Statement which will see capital spending rise by €500m every year between 2019 and 2021.

This will result in gross capital spending of nearly €7.8bn in 2021, 85% higher than the €4.2bn spending last year.

The statement also estimates the fiscal space for next year will be €1.2bn.

It also allows for around €500m available for discretionary measures for next year.

Minister Donohoe said: "The economy is growing at a healthy pace and generating jobs-rich growth. Indeed, we are now approaching a situation in which jobs are available for all those who want them. Now is the time to build on the gains of recent years, to improve the resilience of the economy and to address the capacity constraints that are emerging’.

“We live in an increasingly uncertain world and must plan accordingly. To this end, the Government will maintain a rainy day fund while at the same time increasing public investment. We will continue to reduce public debt in order to build up fiscal buffers. It is also important to make the taxation system more growth-friendly and the Government will continue to work in this area.”

The Summer Economic Statement sets out that the Government will:

• Balance the books next year;

• Implement sensible budgetary policies designed to ensure stability and continued improvements in living standards;

• Establish a rainy day fund from 2019 onwards, to be capitalised with annual contributions of €500 million from the Exchequer;

• Increase capital investment by an additional €500 million in each of the years 2019-2021 to further develop our economic and social infrastructure so that we can better meet the needs of our people as our economy, and society, grows. This increase, which will enhance the competitiveness and resilience of the Irish economy, will result in gross voted capital of nearly €7.8 billion in 2021. This will be 85% higher than the outturn of €4.2 billion in 2016.
• Focus on the totality of expenditure – which amounts to around €60 billion – in order to ensure maximum value-for-money;
• Continue to reduce the debt to GDP ratio until the 60% legal threshold is achieved. Thereafter work will begin on reducing the ratio to 55% of GPD and, once major capital projects have been completed, the reduced rate of 45% will be targeted.

Update - 12.10pm: The Finance Minister Paschal Donohoe has warned there will always be constraints on the Irish economy, no matter how well the recovery is going.

Mr Donohoe’s Summer Economic Statement is expected to contain details of possible tax cuts and spending increases.

However, it is feared that promises to upgrade our infrastructure could lead to the Government dipping into our savings.

The crucial part is the so-called "fiscal space" - the amount which Minister Donohoe will have to spend on new measures. That will come in at around €1.2bn.

He told Pat Kenny on Newstalk the Government is keeping plans for its rainy day fund.

He said: "You will see two areas that are new: you will see it’s committing to a different debt target for our economy in the coming years to allow us to invest more in roads, in schools, and public transport.

"And you will see a decision in relation to the setting up of the so-called rainy day fund: we are going to set one up, but at a different level."

"What you won’t see a change in, is next year I’m committing to balancing our books".

But Mr Donohoe admitted this will not mean we can do what we like.

He said: "There will also be constraint - there will be constraint for two reasons: the first one is we’re in a new Euro now that has a number of rules that (we) didn’t have a number of years go.

"The second one we have to be sensible about our finances".

He also said he will have an additional €1.5bn to play with over the next three years for capital projects.

"By next year, our capital expenditure will go above €5bn, by 2021 it will be €7.8bn - which will be an 85% increase versus where we were at the depth of our difficulty".

Asked what projects are earmarked for this money, he said: "I’m not announcing that today".

"The reason for that is every project has to go through a cost-benefit analysis, and we want to do a 10-year capital plan later on in the year, tying in with a better planning framework for the country".

On the issue of fiscal space, the minister said a big amount of that has already been committed to measures announced last year.

"We have a number of full year commitments that we have to honour for next year... When those are paid for it means there’s €500m available for discretionary measures.

"If the Lansdowne Road Two Agreement is ratified later on in the year that will reduce that figure further... (to) approximately €300m".

Earlier: Finance Minister, Paschal Donohoe, will release the first details of next year’s Budget later today.

The Summer Economic Statement will outline the general state of play in that Budget, including the projections for growth in the economy, and the numbers of people at work.

The crucial part to be announced is the so-called "fiscal space" - the amount which Paschal Donohoe will have to spend on new measures.

That will come in at around €1.2bn, but over half of that has already been committed to measures announced last year.

That leaves just €500m available, some of which will already have to be set aside for the proposed new public pay deal.

It is expected cutbacks will be needed elsewhere to fund new spending or any tax cuts.