Dáil Éireann Debate, Wednesday - 22 February 2012
54 Deputy Thomas P. Broughan asked the Minister for Finance if he will explain the implications under the fiscal compact treaty of the 0.5% structural deficit limit on fiscal and budgetary policy; and if he will make a statement on the matter. [9923/12]
View answerOnce the excessive deficit is corrected, Ireland will be subject to the preventive arm of the Stability Pact. Therefore, from 2016 onwards, we will be required to meet (or be making sufficient progress towards) our medium term (budgetary) objective — the so-called MTO. The MTO is a target that is set for the structural fiscal position (i.e. adjusting the public finances for the impact of the economic cycle) that takes into account the level of debt as well as implicit liabilities associated with the ageing of the population. In terms of the speed of consolidation towards the MTO, work at EU level is ongoing and it is expected that the Commission will provide clarity on the time-frame for convergence, taking into consideration country-specific sustainability risks, that participating Member States will be required to respect.
The structural balance is not possible to measure directly and must be estimated. However, the applicability of the "one size fits all" approach currently used to determine the structural fiscal position in an Irish context has been raised with the Commission in the past. Further discussions will be undertaken, including as part of the revisions to the country-specific medium term objectives being undertaken this year.
Leaving aside the methodological considerations, it should be remembered that estimates of the structural balance in 2015 are not fixed — policies that may be implemented by Government in the intervening period can be expected to have a bearing on the figure. Taking account of this fact, it is clear that it is difficult to quantify with any degree of certainty the scale of any further adjustments that may be needed in the post-2015 period.
For instance, microeconomic reforms (which are a key part of the EU/IMF programme) that help to address some of the skills mis-match in the labour market could help lower the "equilibrium" unemployment rate with a structurally beneficial impact on the public finances (on both the revenue and expenditure sides) — in other words, the structural fiscal position could improve with reforms.
In this context, the Government's recently announced action plan for jobs, which is designed to significantly improve employment over the next number of years, will alter the outlook in the future. This should impact positively on the amount of fiscal adjustment that may be required.
In summary, there are lots of moving parts and therefore, the speed and scale of additional consolidation post-2015 must be seen in this context. However, what is clear is that in order to continue to restore sustainability to our public finances, Ireland's budgetary position will — for the foreseeable future — have to be in balance or in surplus in structural terms.
