Dáil Éireann Debate, Wednesday - 18 April 2012
97 Deputy Thomas P. Broughan asked the Minister for Finance if Dáil Éireann will receive all available information in relation to the debt brake concept in order to assist constituents and the whole community in relation to the forthcoming fiscal compact treaty referendum; and if he will make a statement on the matter. [17705/12]
View answer98 Deputy Thomas P. Broughan asked the Minister for Finance if Dáil Éireann will receive all available information in relation to 0.5% structural deficit concept in order to assist constituents and the whole community in relation to the forthcoming fiscal compact treaty referendum; and if he will make a statement on the matter. [17706/12]
View answer184 Deputy Michael Creed asked the Minister for Finance if he is satisfied that a shared definition of structural deficit exists across the Eurozone; and if he will make a statement on the matter. [18807/12]
View answer232 Deputy Thomas P. Broughan asked the Minister for Finance his views on the implications for the Irish economy of the 0.5% structural deficit limit under the fiscal compact treaty; and if he will make a statement on the matter. [19242/12]
View answerI propose to take Questions Nos. 97, 98, 184 and 232 together.
The Fiscal Compact is a key part of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union agreed at the end of January.
The Fiscal Compact requires inter alia that the structural deficit of each Member State be at its country-specific medium term objective (MTO), and that Member States ensure rapid convergence towards their MTOs. The limit for the MTO is set at a deficit of no more than 0.5% of GDP, although in the case of countries with a very low ratio of public debt the limit for the MTO can be a deficit of up to 1% of GDP.
The structural deficit is that part of a country's government deficit which will not be eliminated by economic recovery. However, a difficulty arises in measuring this structural deficit — it cannot be measured directly and, instead, must be estimated. While there are a variety of ways to do this, a harmonised approach has been developed within the EU and this is used in assessing compliance with the Stability and Growth Pact. It is important to stress that all estimates of the structural balance are subject to uncertainty, especially for a small and very open economy like Ireland's. In line with the Stability Treaty, 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. Progress towards and respect of the MTO is to be evaluated on the basis of an overall assessment, with the structural balance as a reference. In that context, we will work to ensure a practical approach is pursued.
In practical terms, running a broadly balanced structural budget means that, over the full economic cycle, the public finances are balanced. The headline fiscal balance can, of course, fluctuate on a year-to-year basis in line with the economic cycle.
Focusing on the structural budget position can help prevent the boom-bust approach to budgetary policy that, unfortunately, has characterised our situation over the past decade or so. As such, this is to be welcomed.
From a wider perspective, the fiscal compact will help ensure sustainable public finances in all participating Member States, helping to safeguard the stability of the euro area and the EU as a whole, which is in all of our interests.
Finally, in relation to the so-called "debt-brake", I'm assuming that this is a reference to the automatic correction mechanism that contracting parties to the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union are required to put into national legislation.
This automatic correction mechanism is to be based on a common set of principles to be proposed by the European Commission, concerning in particular the nature, size and time-frame of the corrective action to be undertaken. The automatic correction is to be triggered in the event of a significant observed deviation from the country-specific medium-term budgetary objective (MTBO) or the adjustment path towards this MTBO.
Finally, I would point out the Taoiseach has given a commitment that legislative measures associated with the Treaty will be made publically available in advance of the referendum.
