Rory O'Hanlon
Question:32 Dr. O'Hanlon asked the Minister for Finance the impact on inflation, the Exchequer borrowing requirement and the budget deficit of increases in expenditure announced since the budget on 8 February 1995. [6276/95]
Written Answers. - Fiscal Policy Parameters.
Bertie Ahern
Question:34 Mr. B. Ahern asked the Minister for Finance if the Government remains firmly committed to the fiscal policy parameters laid down in A Government of Renewal. [6378/95]
I propose to take Questions Nos. 32 and 34 together.
The Government remains firmly committed to the fiscal policy parameters set out in our policy programme. Briefly, these envisage strict adherence to Maastricht's fiscal convergence criteria — i.e., that the annual general Government deficit should be no more than 3 per cent of GDP, and that the gross debt-GDP ratio will continue to decline satisfactorily towards 60 per cent. In that context, we undertook to maintain the EBR prudently below 3 per cent of GNP, and to restrict the growth of current supply spending to a maximum of 6 per cent in nominal terms in 1995 and to an average annual rate of 2 per cent in real terms over the following two years of the programme.
These undertakings were fully accommodated in the budget which I introduced on 8 February last. The 1995 EBR is set at 2.4 per cent of GNP; the general Government aggregates are well within the Maastricht limits; and the gross current supply service spending provision made in the 1995 budget represented an increase of just 5.8 per cent over the 1994 outturn. It is obviously not possible at this early stage to make a firm judgment on either the prospective outturn for 1995 or the fiscal outlook for 1996 and 1997. However, the budgetary indicators over the year to date are broadly supportive of the budget projections.
At the same time, the Government have determined that progress must be made this year to implement the recent equal treatment judgment in the High Court. This ruling held that some £260 million in arrears and compensation payments are owed to women who did not receive their full entitlement to welfare payments over a number of years dating back to 1985. Having accepted the High Court decision, the Government is committed to meeting the liability as quickly as possible and it is expected that some £200 million of the back payments will be issued this year.
I made provision of £60 million in the budget arithmetic in the expectation that some payments for equal treatment would be made in 1995, so the extra expenditure over the budget provision amounts to £140 million in the current year. It is intended that this once-off expenditure will be funded by disposing of part of the asset represented by Exchequer advances, via the local loans fund, to local authorities. There will therefore be no effect on the overall budget target EBR. However, the additional spending will drive the headline rate of increase in current supply services in 1995 above the 5.8 per cent projected in the budget, to 7.1 per cent. This matter arises directly from the decision by the High Court in regard to payments determined to have been properly due in earlier years. The exceptional £140 million should not be construed as affecting the underlying adherence to the 6 per cent limit in 1996. Equally, the amount involved will not be counted in the base for calculation of the following year's spending limit under the Government's policy programme commitment.
Finally, our analysis of the additional expenditure deriving from the equal treatment liability is that the amount involved is not likely to add significantly to inflationary pressures in 1995. Despite the strong recovery in domestic demand, the mid-February CPI data confirm that at just 2.5 per cent, Irish inflation has been very stable since mid-1994, and the increased expenditure is unlikely to affect this position.