Fiscal paradox: Decreasing spending while putting more money in people’s pockets

GDP will grow and inflation will moderate over the years, according to the Budget 2025 estimates, despite a drop in the government’s recurrent expenditure as a percentage of GDP.  

Real GDP growth is expected to hover between 4.3% and 4.5% over the next three years, which is well above the real GDP growth averages at EU level. 

The inflation rate will also moderate between 2.1% and 2.3% over the same time period.  

Meanwhile, the gap between recurrent revenue and recurrent expenditure is expected to widen significantly over the next years. In 2025, recurrent expenditure will sit at 29.3% of GDP while revenue will stand at 31.5%. By 2027, these will be 27.5% and 31.5% respectively.  

This growing gap between government revenue and expenditure comes down to increased efforts in tax collection, as well as decreased spending on energy subsidies as a percentage of total government expenditure.  

As far as energy subsidies are concerned, the share of government spending on this measure should drop to 2.4% in 2025. In 2023, the spending share was 4.8% of recurrent expenditure. 

Between changes in tax bands, spending on subsidies, and other budgetary measures, the government should be putting around €550 million in people’s pockets. 

Meanwhile, capital expenditure is set to grow over the years. It is set to dip slightly in 2025 to 4.4% of GDP, but by 2027, the government will be spending 5% of GDP on capital projects. 

The deficit should decrease over the years and reach the 3% of GDP target in 2026. In 2025, the deficit should drop to 3.5% of GDP. 

Public debt will increase slightly as a percentage of GDP but will only reach 50.1% in 2025 before dropping to 50% in 2026 and 49.2% in 2027.