Dáil Éireann Debate, Wednesday - 9 November 2016
75. Deputy David Cullinane asked the Minister for Finance if he and his Department realise the distinction between borrowing for current spend and capital spend; if the EU rules restricting borrowing are limiting potential to invest in capital infrastructure; if he will seek changes in this regard; and if he will make a statement on the matter. [33889/16]
View answerI want to assure the Deputy that both I and my Department are conscious of the distinction between borrowing for current and capital purposes.
I also want to assure the Deputy that I and my Department are aware that our debt level is of the order €200 billion this year.
Moreover, both I and my Department are conscious of the fact that market access on reasonable terms is contingent upon continuing to reduce our debt-to-GDP ratio.
Having said that, I would point out that while my Department is forecasting an Exchequer current budget surplus of c.€2 billion in 2017, it is forecasting an Exchequer capital deficit of nearly €4.2 billion. In other words, we are borrowing for capital purposes.
The fiscal rules do not prevent or constrain public investment. The fiscal rules simply require that all expenditure - be it current or capital - is sustainably financed. Member States are free to choose whatever level of capital spending they like, subject to the requirement that the expenditure can be financed. Put another way, resources are finite - it is a question of whether we prioritise current expenditure or capital expenditure. This is, of course, a difficult balancing act, and in the recent Budget the Government struck an appropriate balance.
It is also worth pointing out the flexibility provisions within the fiscal rules for capital spending. For instance, within the expenditure benchmark pillar of the rules, public investment is granted favourable treatment through the four-year smoothing of capital formation increases. This means that only one quarter of the increase in public investment must be funded in the first year from within the fiscal space. Basically, this facilitates the front loading of capital formation increases.
In conclusion, sustainable public finances are a prerequisite for continued strong economic growth. My view is that the fiscal rules should not be seen as inhibiting policymakers - they are about ensuring sustainable improvements in living standards for all our citizens.
