Dáil Éireann Debate, Wednesday - 1 April 2015
33. Deputy Michael McGrath asked the Minister for Finance his views on the need for flexibility in the application of budgetary rules under the fiscal compact and the two pack; the flexibility he is seeking to negotiate for Ireland; the way these rules will impact on his decision making in budget 2016; and if he will make a statement on the matter. [13050/15]
View answerFrom 2016, the public finances in Ireland will be subject to the rules of the preventive arm of the Stability & Growth Pact. Assessment of compliance with the rules of the preventive arm is based on two pillars: the annual improvement in the structural balance and the expenditure benchmark.
The expenditure benchmark links growth in expenditure to the potential growth rate of the economy. Additional expenditure above the benchmark has to be paid for through the introduction of new discretionary revenue measures. The benchmark also contains a feature that is designed to assist with achieving the minimum annual structural improvement of more than 0.5% of GDP.
I have raised on a number of occasions, including at the recent Eurogroup meeting, the use of outdated estimates of growth in the calculation of the expenditure benchmark. At the moment, the reference rate used in the calculation of the expenditure benchmark is based on a ten year average of potential growth that is updated every three years. The reference rate to apply for 2014 to 2016 was calculated in 2013 when both the outturn and outlook for our economy's growth potential was considerably weaker. The use of these outdated estimates could lead to inappropriate fiscal decisions being made.
On foot of my interventions at political level, my officials have been in discussions at a technical level with the European Commission and other Member States.
The aim of technical discussions has been to ensure that the methodology for calculating potential output and its implementation in the context of EU fiscal rules is applied in a manner that produces credible results that underpin the operation of a sound set of rules.
The focus of our discussions has been two pronged: firstly to improve how estimates of potential GDP are calculated for Ireland by using more appropriate population projections and secondly to apply these calculations in a more logical fashion so that the fiscal policy consistent with these rules is set based on latest available information regarding both the outturn and prospects for the Irish economy.
Discussions are progressing well but final decisions at a technical level must be endorsed at the relevant committees. While I do not want to prejudice these ongoing discussions, I want to welcome the strong engagement of the Commission on this issue.
Finally, I would emphasise that I support the revised fiscal rules. What I am seeking from the Commission and colleagues from other Member States is a more sensible application of the rules for all Member States as this will enhance the credibility of fiscal policy decision making.
