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Fiscal Policy

Dáil Éireann Debate, Tuesday - 3 March 2015

Tuesday, 3 March 2015

Questions (215)

Michael McGrath

Question:

215. Deputy Michael McGrath asked the Minister for Finance the agreed deficit targets that Ireland must reach in 2016, 2017 and 2018; and if he will make a statement on the matter. [9158/15]

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Written answers

Once Ireland reduces the headline deficit below 3% of GDP we will be subject to the requirements of the preventive arm of the Stability and Growth Pact ('the Pact'). Unlike the corrective arm of the Pact which sets annual headline interim targets for the deficit each year until the excessive deficit procedure is lifted, the preventive arm does not prescribe a path for the headline or structural deficit.

Rather, it prescribes the annual rate of change in the structural budgetary position until the target - the country-specific medium term (budgetary) objective (MTO) - is met. In Ireland's case the MTO is a balanced budget position in structural terms. Under the preventive arm, the Pact requires Member States to make sufficient adjustment towards achievement of their respective MTO. The pace of correction in the structural budget balance must be at least 0.5 percentage points per annum in 'normal' economic times. This is defined as an output gap of between -1.5 and +1.5 per cent of potential GDP. Depending on the cyclical conditions experienced by the economy, this requirement can be modulated in accordance with the new provisions set out in the January Communication from the European Commission on 'Making the best use of the flexibility within the existing Stability and Growth Pact'.

The forthcoming April 2015 Stability Programme Update will set out the implied headline and structural deficit paths consistent with meeting these criteria from 2016 onwards.

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