I propose to take Questions Nos. 174 to 176, inclusive, together.
First and foremost, I would point out that three years is the standard forecast horizon used throughout the EU in budgetary publications and covers the medium term budgetary framework. Accordingly, when the Department publishes the Stability Programme Update in April it will contain official fiscal and macroeconomic forecasts until 2016.
Looking at the fiscal impact of the promissory note deal, there are some aspects of the deal which are yet to be finalised. For example, the liquidator is in the process of overseeing a valuation and sales process for the assets of IBRC, while the final payments made under the ELG Scheme have not yet been determined.
Nevertheless, simulations ran by my Department estimate that the General Government deficit will improve by approximately €1 billion per annum over the medium term and this should be instructive to the Deputy.
The Government’s focus is on stabilising the General Government debt to GDP ratio and beginning the process of reducing it to a lower, safer level over time. The latest official forecast of General Government Debt was contained in Budget 2013, which projected General Government Debt peaking in 2013 before falling gradually though the forecast horizon. The debt rule in the Fiscal Compact, which implements the Stability & Growth Pact provisions, requires us to reduce that part of the debt ratio which is above the threshold rate of 60 per cent annually by at least one-twentieth of the difference between the actual rate and the threshold rate.
A transition period will apply for all countries, including Ireland, that are currently subject to the excessive deficit procedure. During this transition period, which would last for three years following the correction of the excessive deficit, the requirement under the debt correction rule is deemed to be fulfilled if we are making “sufficient progress” towards compliance.
In terms of the fiscal implications of this debt correction rule, it is important to remember that it is the debt to GDP debt ratio that is important, not the overall nominal level of General Government debt. In other words, on the basis of reasonable assumptions over the medium-term, we can expect economic growth to do much of the work in this regard.
Obviously, the reduced borrowing requirement over the medium term arising from the promissory note deal will help us to achieve our debt targets more quickly.
Additionally, the terms of the Fiscal Compact Treaty require us to converge towards our Medium Term Budgetary Objective once we are out of the EU/IMF Programme. It should be noted that the MTO is a structural balance target, net of one-offs and cyclical factors. For Ireland, the conversion of our structural budget position into nominal figures is a complex process. It is too early to try and do this in respect of the period 2018-2025 sought by the Deputy.
I would emphasise the point that while the agreement on the promissory note is a significant step forward in restoring sustainability to our public finances, this Government is well aware that there remains a considerable gap between what we get in revenue and what we spend. This situation is not sustainable over the longer term. In addition to the requirements to bring our deficit to under 3% of GDP by 2015 as per the EDP, it makes sense that we bring balance back to the public finances and stabilise and reduce our debt burden.