Dáil Éireann Debate, Thursday - 11 June 2015
88. Deputy Michael McGrath asked the Minister for Finance his views on the finding of the Irish Fiscal Advisory Council that the Spring Economic Statement and the Stability Programme Update 2015 incorporate a further adjustment for tax buoyancy that goes against the letter and spirit of the expenditure benchmark rule; and if he will make a statement on the matter. [22923/15]
View answerThe Irish Fiscal Advisory Council's report does state that the inclusion of tax buoyancy appears to go against the letter and spirit of the expenditure benchmark and it goes on to state that it sees no argument for the inclusion of a temporary demand effect in the calculation of expenditure benchmark compliance given the objective to match structural changes in spending and revenues.
I do not agree with the Council's conclusions. The European Commission has stated repeatedly that the idea behind the expenditure benchmark is to ensure that any plans for increases in expenditure are properly financed, without leading to a weakening of the underlying fiscal position. This is, for us, the letter and spirit of the expenditure benchmark and we are of the opinion that excluding tax buoyancy would go against that spirit and be inconsistent with the overall operation of the Stability and Growth Pact. For instance, the Budgetary Frameworks Directive requires Member States to ensure that fiscal planning is based on realistic macroeconomic and budgetary forecasts. It is, therefore, appropriate that we take the second round effects of budgetary measures into account when we forecast tax revenues because these are real effects with real impacts on revenue. In cases such as that set out in the Spring Economic Statement and the Stability Programme Update, where proposed budgetary measures will reduce the burden on taxpayers, the second round effects will lead to real and structural increases in tax revenue that partially reduce the costs of the proposed measures.
I am therefore of the view that the inclusion of additional revenue buoyancy as a result of policy measures should be included in the calculation of the expenditure benchmark.
