Simon Harris: Iran war energy shock shows value of running budget surpluses

The energy shock as a result of the war in Iran highlights the importance of running “budget surpluses in good times”, Simon Harris has said.

The Tanaiste and Finance Minister said the Government will be taking measures on Tuesday to “reduce prices at the petrol pump” and “support those most at risk of fuel poverty”.

Energy and fuel prices have risen across the world as a result of the US and Israel’s war in Iran which has entered its fourth week.

Sinn Fein has called on the Government to scrap plans to increase carbon tax on home heating oil on May 1, and to reduce the cost of fuels through emergency legislation on mineral oil taxes.

In a statement on Saturday, Mr Harris said he is “conscious of the fact that people are really feeling financial pressure, and indeed financial anxiety” due to the rising prices.

“At this point, there is no clarity regarding the depth and duration of the conflict – this means there is considerable uncertainty regarding the economic fallout from the shock to oil supplies,” he said

“If the conflict continues for a prolonged period, the impact on the global economy will be real – Ireland could not be immune from such an outcome.

“It is important to stress that we, in Ireland, are approaching this global economic challenge from a position of relative strength – we are running a significant budgetary surplus which gives us the fiscal capacity to respond.

“In the past, we have often been criticised for running these budget surpluses and asked why we do not spend all available resources.

“The current situation highlights why it is so important to run budget surpluses in ‘good times’ – this common-sense approach to budgetary policy allows us to build up fiscal buffers and gives us the capacity to intervene when an economic shock arises.

“One important side effect from the energy price shock has been the increase in sovereign borrowing costs, with these reaching near two-decade highs in some countries; our favourable fiscal position thankfully means that we are not in this space.

“The interventions we will announce on Tuesday strike an appropriate balance between providing help now and keeping some of our powder dry – nobody knows what the situation will be in a month from now, so we must remain nimble and flexible in our response.

“For this reason, I believe that any measures introduced initially should be for a short, defined period, with the option to renew, revise or adjust them as circumstances evolve; this approach is in line with that which some other EU member states are taking.

“I have asked my officials to finalise a macroeconomic analysis covering a range of potential scenarios arising from this conflict.”

Mr Harris also said he expects the Irish economy to grow “albeit at a slower pace than previously envisaged” and he will attend a meeting with European counterpoints next week to “assess the situation collectively”.

“This current conflict is a sharp reminder to the world, including Ireland, that we must accelerate our transition towards energy independence, and I will be discussing this with government colleagues in the days ahead,” he said.

Mr Harris concluded: “Finally, I want to stress that Ireland, and the Irish economy, will get through this – I have no doubt about that.

“That said, the sooner we see a de-escalation of the conflict the better for both humanity and for the living standards of everyone.”