Dáil Éireann Debate, Thursday - 21 April 2016
23. Deputy Richard Boyd Barrett asked the Minister for Finance further to Parliamentary Question No. 111 of 14 April 2016, the estimates and sources on the fiscal space for the years 2016 to 2018 that form the basis of his pre-election statements on the fiscal space available. [7957/16]
View answerEstimates of the gross and net fiscal space for the period 2016 to 2018 can be found in Tables A8 and A9 on pages C.50 and C.51 of the Budget 2016 book - http://www.budget.gov.ie/Budgets/2016/Documents/Economic%20and%20Fiscal%20Outlook%202016.pdf.
In the Spring Economic Statement 2015, the Government indicated that the available fiscal space for Budget 2016 was in the range of €1.2 billion to €1.5 billion. As the Deputy is aware this was fully allocated in 2016. For the convenience of the Deputy the gross and net fiscal space for the period 2017 to 2018 is set out in the following table.
|
€ billions |
2017 |
2018 |
Total |
|
Gross fiscal space |
1.3 |
1.5 |
2.8 |
|
Net fiscal space |
0.5 |
1.1 |
1.6 |
Table A9 in Budget 2016 shows the walk from gross fiscal space to net fiscal space. The former is simply the permitted fiscal space arising from applying the currently forecast benchmark growth rates to the projected expenditure aggregate for each year. These amounts are not final and are based on my Department's projections for the GDP deflators, reference rates and convergence margins for each of the relevant years as set out in Budget 2016 (see Table A.8). The actual GDP deflators, reference rates and convergence margins values used by the Commission to assess compliance with the rules each year beyond 2016 will be based on Commission estimates compiled in their Spring forecast, and in relation to the GDP deflator, the Autumn forecasts as well, each year.
A further source of variance arises from the fact that the various factors are applied to the general government expenditure outturn, excluding some items such as interest and the level of cyclical unemployment expenditure. With regard to cyclical unemployment, the Commission's estimates are based on their own data. Therefore, outturn variances from the levels forecast in Budget 2016, which are likely in the course of implementation and due to the allocation of fiscal space to expenditure, is another source of uncertainty, albeit with a relatively limited impact.
The net fiscal space is the additional room available beyond spending assumptions included in the Budget's baseline spending projections set out in Table 10 on page C.22 whilst still complying with the upper limit under the Expenditure Benchmark. These assumptions, which are set out in Table A9, include the annual cost of providing for demographic spending pressures together with a number of other anticipated elements such as the Public Capital Plan, the cost of the Lansdowne Road Agreement and a number of other calls on the Central Fund. The annual cost of indexing the tax system at an annual full year cost of c. €400m per annum is included in the baseline tax revenue figures in Table 10. For illustrative purposes, the additional revenue generated from a political decision not to proceed with indexation is included in the discretionary revenue measures set out in Table A9. Decisions on whether to proceed with indexation or introduce other tax measures each year will be a matter for decision by the Government.
A document outlining the 'Forthcoming Revisions to the Medium Term Budgetary Objective' was published on my Department's website on the 21 January 2016. This explained that the European Commission was in the process of updating the minimum Medium-Term Objectives (MTOs) of Member States in line with the three-year evaluation cycle. This process is now complete and, as anticipated by my Department, Ireland's minimum MTO is now -0.5 per cent of GDP instead of 0.0 per cent of GDP. The change is due to the improvement in Ireland's debt ratio and other factors. Should the MTO be readjusted to such a level in the forthcoming Stability Programme Update, it more likely that the MTO will be achieved earlier than projected in Budget 2016. This in turn would result in additional fiscal space in the region of €1-1.5 billion in the year after the MTO is achieved.
