Dáil Éireann Debate, Wednesday - 23 May 2012
6Deputy Joan Collins asked the Minister for Finance based on current Government projections for GDP, debt, the structural deficit and growth, the fiscal adjustments that would be necessary to meet the targets of the fiscal treaty in the first, second and third years following our exits from the current EU-IMF programme if the provisions of the treaty were to come into force at that time; and if he will make a statement on the matter. [25660/12]
View answerThe Deputy will be aware that Ireland is scheduled to exit the EU-IMF programme of financial support at the end of 2013. Our general Government balance targets, GGB, for 2014 and 2015, were agreed with the ECOFIN Council in December 2010. The maximum GGB permitted is minus 5.1 % of GDP in 2014 and minus 2.9 % in 2015. On the basis of the macro-economic and fiscal projections set out in April's stability programme update, my Department is currently forecasting that both of these targets will be met or marginally bettered. This is based on the agreed budgetary measures. Therefore, as I have previously said, there is nothing in the stability treaty that requires us to do more than we are already doing, over the period to 2015.
The growth forecasts set out in the recent stability programme update, SPU and the consolidation amounts outlined in last November's medium-term fiscal statement, are consistent with a general Government balance of just under minus 3% of GDP in 2015. As discussed in the SPU, the exact size of the structural component of this is, of course, uncertain. Not only do technical estimates differ, depending on the approach used, but it is also the case that estimates of the structural balance further out the forecast horizon are not fixed. Policies being implemented at present, together with future measures, can be expected to impact positively on the figures.
As I have said on a number of other occasions, reducing the structural element of the deficit will require policy action, though not necessarily taxation and expenditure adjustments. Other options are available and it is the Government's intention to pursue these. Such measures include labour market reforms, together with investment in technology and infrastructure. By boosting the productive capacity of the economy, the ambitious programme of micro-economic reforms that is already under way is expected to help reduce the structural element of the deficit by the middle part of the decade.
Additional information not given on the Floor of the House.
Under the Stability and Growth Pact, when a country is in excessive deficit, the focus of the fiscal effort is on reducing the headline deficit to below 3% of GDP. In our case, the time path to achieve this objective is end-2015. Once a country comes out of excessive deficit, the focus is on bringing a country's public finances into line with its agreed medium-term budgetary objective.
As I mentioned earlier, Ireland's medium-term budgetary objective, MTO, currently stands at 0.5% of GDP. This objective was set under the Stability and Growth Pact and well in advance of the stability treaty. Furthermore, as noted above, estimates of the structural deficit vary in an Irish context. What I can say is that we are making progress towards the achievement of our MTO, and further progress will be made in the post-2015 period on a phased basis, in accordance with a timeline to be agreed.
In terms of the debt correction rule, Ireland and the other member states currently in excessive deficit on the basis of the deficit criterion, are not subject to this at this time. For us, the priority is to stabilise our debt-to-GDP ratio. After coming out of the current excessive deficit procedure, and as a programme country, we will then be able to avail of a three-year transition period before the full one twentieth rule will apply. This means that Ireland will not be fully bound by the rule until 2019, though in the 2016-18 period, we will need to make sufficient progress in terms of reducing our debt ratio.
Lastly, I would stress again that, when it comes to meeting the debt requirement, it is reasonable to expect that economic growth will do most of the heavy lifting.
It is true that there are a lot of variables when we are trying to project future growth rates, inflation and so on. However, I think the Minister is covering up the facts about what we have to do to meet these targets because of the impact that might have on a vote on the fiscal treaty. If inflation was rising significantly or if there was a significant prospect of growth in excess of the forecast on which the Minister based his budget, then he would be right.
A question please, Deputy.
Is it not the case, however, that all the variables are moving in the opposite direction? That means it is more likely that the Minister will have to make even bigger adjustments, namely cuts, in order to meet the targets when the treaty's provisions come into force. That fact has been confirmed by Professor John McHale, chairman of the Fiscal Advisory Council. Professor McHale wrote that in the event that nominal GDP growth were to end up 1% weaker per annum, over the period 2012 to 2105, than envisaged in the budget 2012, the debt to GDP ratio would not stabilise by 2015 without additional discretionary measures. In other words, matters would be worse. Since those words were written, the growth projections have been significantly downgraded. Growth forecasts are worse, thus making the possibility of having to inflict brutal cuts to meet the fiscal targets more likely rather than less. It is about time the Minister admitted to the Irish public that that is a real possibility arising from the provisions of the treaty.
With respect to the Deputy, he is mixing up the structural deficit with the nominal deficit.
I am not.
He is. He is talking about the target for 2015 of getting below 3%, which is the nominal deficit. Of course, the pace of growth and inflation has an influence on that. The advice to me at present is that we will meet that target provided we meet the targets of adjustment that were set out in the programme. Before the Deputy came into the Chamber, I quoted what Professor McHale said about the structural deficit. Last night on "Prime Time", he said that no additional consolidation will be required to meet the structural deficit target. He is basing that opinion on very conservative growth assumptions. It is now May 2012 and if one looks at the projected deficit figure for 2015, 2016 or 2017 it is a forecast being made today for a point in time. It is being made on the assumption, however, that there is no policy change of any sort. If there are structural flaws in the economy, any self-respecting Government will try to address them. On the basis of fixing the flaws the structural deficit goes, and the nominal deficit is taken care of after 2015 by modest growth assumptions.
Really and truly, I think the Minister is trying to blind people with science.
A question, please.
Is it not the case that the Minister's own figures show that even if those growth projections had held up, we would have been looking at approximately €5 billion to €6 billion to meet deficit targets post-2015? Several billion would also be needed to meet the debt-to-GDP ratio targets contained in the treaty unless there is significant growth in the economy, which there is not because the growth projections are being downgraded. The Minister seems to be suggesting that we can have a €200 billion debt and a 3% structural deficit, and it will not cost us anything to reduce that to 0.5% or 60% of GDP. How can one make those sort of repayments and adjustments without it costing billions in cuts for ordinary people?
The latest set of forecasts was published this week by the OECD, which said that the world is working its way out of recession. It named some of the bigger economies that are doing well. It also said its estimate of growth in Ireland for 2012 is 0.6%, and 2% for 2013. That is actual growth, not nominal growth. One must put inflation on top of that when one looks at the figure on which the budget is based. The Deputy can talk about being bamboozled with facts, but that is the latest forecast. The OECD might be right or wrong because forecasts are very inexact as circumstances change. All we are giving is the best possible information. On the basis of the best information I have, we will be on target at the end of the year on this budget, and will be below the target of €8.6 billion in the deficit. We will have to make a correction next year to get below €7.5 billion. If there is 2% growth in real terms it will be quite helpful in forming next year's budget. That is not to say that it will not be tough. I appreciate the stress it puts families under but there is no point in trying to undermine the basis of the figures. I am trying to explain to the Deputy how things will be constructed. It is difficult enough for people without exaggerating the difficulties.
Can the Minister confirm that his Department's structural deficit projection of 3.5% takes on board the €8.6 billion of adjustments he is planning to make over the next three years? Can he also confirm that Professor John McHale - whom the Minister appointed as chair of the Fiscal Advisory Committee - has issued two reports calling for additional adjustments, which will be tax increases and cuts, in the budget, and that the Minister has ignored them? If we do not meet the medium-term objectives for the structural deficit, it will trigger an automatic mechanism that will have to be legislated for in the Oireachtas. Can the Minister explain what that automatic mechanism will be?
My question, which was tabled by Deputy Collins, is straightforward and concerns the fiscal treaty. Will the Minister deal with this question of a veto that the "No" side continues to raise. What is the advice available to the Minister?
That has nothing to do with it.
It does actually.
It has nothing to do with the question.
The question is about the fiscal treaty.
I have not read them all.
Can I finish with one sentence?
The Deputy has the floor.
What advice is available to the Minister concerning whether Ireland has a veto over the establishment of the ESM in terms of Article 136 of the treaty on the functioning of the EU?
If there is a "No" vote, what budgetary impact will it have post-2013 with regard to the fiscal treaty?
There are two very good boys in the class today.
There is no veto and that has been explained several times.
Parliament has a veto.
The Deputy does not have to turn to me or the Department because the Commission has explained all this. If he looks to the Commission's advice, he will see how it is explained.
The Commission has said that Parliament has a veto.
As I have explained, the estimate of the structural deficit, which the Deputy is using, is the European Commission's estimate. We have used that in the figures we have published. However we have now got written confirmation from the European Commission advising us that Ireland and other eurozone countries can use their own methodology and set of assumptions when estimating the structural deficit.
Does it factor in the €8.6 billion in cuts?
The Minister has the floor.
It is not our estimate, it is the estimate-----
Does it factor in those cuts?
Please, Deputy Doherty.
It is impossible to answer if the Deputy keeps shouting at me.
An answer would be nice.
Tell that to your gang on Leaders' Questions.
Are they a bit unruly?
This is Question Time.
I am sorry. What did Deputy Lawlor ask me?
I asked what would happen if we voted "No".
The sky will fall.
If we vote "No" we will reach the back end of 2013 and we will have no money. We will need €16 billion or so for the following year and we will have no money. The Deputies opposite will then be whingeing, shouting and roaring about cutbacks in health services, education and everywhere else because if we get no money we will have to make the adjustment in one year. If we spread it out over several years it is easier on the people. That is what will happen if there is a "No" vote.
We need to move on. The next question is No. 7 and it and Question No. 12 are being taken together.
