Thursday, 13 June 2019

Questions (65)

Michael McGrath


65. Deputy Michael McGrath asked the Minister for Finance if Ireland breached the expenditure benchmark limit in 2018; his views on whether Ireland will breach the expenditure benchmark limit in 2019; the amount of expenditure permitted under the expenditure benchmark for 2019; the current expectation of the actual expenditure for 2019; the implications from the European Commission if Ireland were to breach the expenditure benchmark limit for two years in a row; and if he will make a statement on the matter. [24793/19]

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Written answers (Question to Finance)

The permitted rate of spending growth, set by the Commission, for 2019 is approximately 7 per cent. As per the 2019 Stability Programme Update, the overall level of general government expenditure this year is projected to be €85.345 million up from €81.985 million in 2018. My officials are preparing the Summer Economic Statement 2019 which forms the next stage of the budgetary process. This will include a medium-term economic strategy and narrative and also provides an updated assessment of the fiscal policy parameters.

In June, the Commission published its assessment of Ireland’s 2019 Stability Programme Update (SPU). On an ex-post basis, Ireland did not achieve its Medium-Term Objective (MTO) in 2018 with an estimated structural deficit of 1.4 per cent of GDP.  However, there are important caveats to this. First, the Commission have acknowledged the very open nature of the economy and the difficulty in estimating the output gap (needed to assess the structural budget position). Partly for this reason, they prefer to use the expenditure benchmark as a guide to fiscal policy.

In 2018, the rate of increase in spending exceeded the limit applicable under the expenditure benchmark. However, the mechanical assessment of the expenditure benchmark takes no account of the non-indexation of income taxation in Ireland (which would permit higher levels of spending, all other things being equal). This is accounted for in an overall assessment and thus the breach of the expenditure benchmark was not adjudged to be significant by the Commission. In simple terms, the Commission’s overall assessment is one of broad compliance in 2018.

For 2019, the forecasts underlying the Stability Programme are compliant with the expenditure benchmark limit. When the years 2018 and 2019 are taken together, the Commission also adjudges Ireland to be compliant with the expenditure rule. The Commission acknowledges some risks of non-compliance with the fiscal rules but concludes that the overall assessment is one of compliance. As regards the MTO (-0.5 per cent structural deficit), the Commission’s assessment is that Ireland will be compliant in both 2019 and 2020.