The achievement of a primary surplus in 2014 will be a welcome milestone in the correction of the public finances. It is a key metric in assessing the underlying sustainability of Ireland’s public finances and is a necessary first step towards lowering our debt levels. It shows that excluding interest expenditure, revenues are sufficient to meet the expenditure obligations of the State. As the deficit further improves and we achieve the targets under the excessive deficit procedure (EDP) the primary surplus is forecast to increase to 2.6% of GDP by 2016. General government debt is a measure of the total gross consolidated debt of the State and includes national debt, as well as the debt of central and local government bodies. For international comparisons, the standard metric is to express general government debt as a percentage of GDP. This ratio has increased substantially in recent years as a result of borrowing to fund a series of deficits and to provide support to the financial sector. In 2013, the ratio of general government debt to GDP is expected to peak at just over 124% before falling to under 115% in 2016. Adhering to the path of prudent budgetary management will allow the debt levels to decline while implementation of policies to encourage economic growth will further aid the reduction in the debt to GDP ratio.
The EDP targets a general government deficit of 3% or less of GDP in 2015. Three years from when Ireland exits the excessive deficit procedure, the “debt rule” as described by the Stability and Growth Pact and implemented by section 4 of the Fiscal Responsibility Act 2012, will fully apply. Under the debt rule, when the ratio of general government debt to GDP exceeds 60%, the difference must be reduced by 1/20th of the difference per year. It will be this rule that will anchor Government policy on Ireland’s debt into the future.