Dáil Éireann Debate, Tuesday - 12 July 2016
211. Deputy Willie Penrose asked the Minister for Finance if he is reviewing the impact of the fiscal compact rules which curtail and delimit necessary capital investments and which have serious consequences in the context of the fallout of the British decision to exit the European Union; if he will ensure that such rules are amended in the context of this new scenario; and if he will make a statement on the matter. [21244/16]
View answerThe budgetary and debt rules contained in the Fiscal Compact arise from the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union. These fiscal rules, which are aligned with the Stability and Growth Pact (SGP), are intended to promote budgetary discipline and were given domestic legal effect through the Fiscal Responsibility Act 2012 following the passage of a constitutional referendum in May 2012 in which the Irish people supported accession to the Treaty.
As the Deputy will be aware, this Treaty was agreed following complex negotiations and it has been ratified by 26 countries in accordance with their own constitutional requirements. Accordingly, any attempt to renegotiate the Treaty would be very difficult. As referred to above, the fiscal rules in the Treaty are aligned with the Stability and Growth Pact (SGP), which has direct application through a number of EU regulations. Changes to these regulations would have to follow the normal EU approach starting with a proposal from the Commission before consideration by Member States and the European Parliament.
It should be noted that the SGP fiscal rules provide for certain flexibilities particularly with a view to encouraging public investment. Specifically the rules allow for certain leniency with regard to the pace of required structural budgetary adjustment if spending on capital investment can be shown to qualify for either the investment clause or the structural reform clause. Both of these provisions are subject to strict conditions which Ireland has not been eligible to utilise to date but, this is kept under review. In addition, in the context of the expenditure benchmark for instance, to avoid penalising Gross Fixed Capital Formation (GFCF) expenditure increases, such investment is averaged over a four year period under the expenditure benchmark. This means that an increase in GFCF only uses one quarter of the fiscal space that an equivalent current expenditure increase would use in the first year. This treatment contributed to the additional €5.1 billion in cumulative capital expenditure over the 2017 to 2021 period set out in the recently published Summer Economic Statement.
While it is difficult to secure changes to the rules, I must point out that Ireland is constantly exploring how permitted flexibility can be optimised and seeking to improve the implementation of the SGP, specifically on how the Commission implements the fiscal rules. In light of this, a number of proposals from Ireland to improve the application of the fiscal rules have been successfully adopted by the Commission.
Any decision in the future to explore the possibility of using these flexibilities will require a quantitative demonstration of the economic rationale for such a case. Ultimately the decision to grant flexibility and the determination of eligibility would however be made by the European Commission.
In the short-term, the recent British decision to exit the European Union is not expected to have a significant impact on our budgetary plans for the forthcoming year. However, looking to the medium term, our macro-economic and fiscal forecasts will be reviewed as part of Budget 2017.
