Dáil Éireann Debate, Thursday - 11 June 2015
86. Deputy Michael McGrath asked the Minister for Finance his views on the finding of the Irish Fiscal Advisory Council that the Stability Programme Update 2015 sets out a plan that lowers the budget deficit by just 0.3% of gross domestic product in 2016, thus falling short of requirements on a forward-looking basis; and if he will make a statement on the matter. [22921/15]
View answerI have noted the views of the Irish Fiscal Advisory Council (IFAC) as published in the Fiscal Assessment Report last week.
We are on track to correct the excessive deficit in line with the requirements of the corrective arm of the Stability and Growth Pact (SGP) this year. Indeed, I note that the ESRI in its Summer Quarterly Economic Commentary published yesterday confirms it too expects a 2015 headline deficit of 2.3 per cent, well inside the 3 per cent of GDP ceiling.
From 2016 onwards, the public finances in Ireland will therefore be subject to the requirements of the preventive arm of the SGP. The European Commission assesses compliance with the requirements of the preventive arm on the basis of two complimentary pillars. First is the minimum annual improvement in the structural balance and the second is compliance with the expenditure benchmark. The minimum improvement in the structural balance and the expenditure benchmark are in theory designed to be complementary, although differences between the two metrics can emerge from time-to-time.
The IFAC noted that the fiscal projections contained in the Stability Programme Update (SPU) did not show Ireland complying with our requirements under the SGP; in other words, that the improvement in our structural balance is below the required 0.6 per cent of GDP in 2016.
However, SPU estimates show that for Ireland compliance with the expenditure benchmark pillar is consistent with delivering a lower suggested quantum of structural adjustment in 2016. This somewhat counterintuitive outcome was explicitly addressed in the SPU, and emphasises the problems posed by some of the technical aspects of the rules.
Finally, it should be noted that compliance with the requirements of the SGP is ultimately assessed on the basis of analysis undertaken by the European Commission. In this context, the recent assessment of the SPU published by the European Commission as part of the European Semester process finds that 'on the basis of information in the 2015 Stability Programme Update re-calculated according to the common methodology, progress towards the MTO is in line with the requirements of the preventive arm of the [Stability and Growth] Pact'. The assessment by the Commission also finds that 'the rate of expenditure growth net of discretionary revenue measures, as planned in the SPU, is expected to be in line with the requirements of the expenditure benchmark pillar'.
In summary, therefore, the projections in the SPU are consistent with the requirements of the SGP.
