Thursday, 26 September 2019

Questions (29)

Thomas P. Broughan


29. Deputy Thomas P. Broughan asked the Minister for Finance the way in which and when he will respond to the recent criticism from the Irish Fiscal Advisory Council that the Government needs to develop a more credible medium-term plan for budget 2020; and if he will make a statement on the matter. [38307/19]

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Written answers (Question to Finance)

The main point raised by the Irish Fiscal Advisory Council (IFAC) in relation to medium-term budgetary planning relates to expenditure ceilings. In this area, my view is that there is a balance to be struck. 

In theory, fixing expenditure ceilings over the medium term has certain advantages, including higher levels of certainty.  

In practice, however, experience shows the inherent risk of expenditure ceilings acting simply as a baseline (i.e. floor), with additional expenditure arising above and beyond this.  The experience in the lead-up to the fiscal and economic crisis is testament to this: large and ultimately unsustainable increases in expenditure were implemented during the pre-crisis period, bringing our country to the verge of bankruptcy.

I am not prepared to go down this route. 

What I have done, however, is to raise the medium-term projected annual growth rate in current expenditure from 2½ per cent to 3¼ per cent in the Summer Economic Statement (SES). Taking into account the increases set out in the National Development Plan and the additional allocation for the National Broadband Plan, this equates to an overall average annual increase of c.3¾ per cent in gross voted expenditure over the period 2020 - 2024.

This is a more plausible growth rate and a rate of expenditure growth that is consistent with the point of the economic cycle where the Irish economy is likely to be.

On the points raised in relation to corporation tax, I have requested my officials to examine potential policy options as to how vulnerabilities could be addressed. I will bring recommendations to Government in due course.  Furthermore, my Department will undertake and publish an assessment of the sustainability of corporation tax receipts, in light of future multilateral policy changes in this area.

Finally, in relation to debt ratio targets, my Department’s analysis of debt as published in its Annual Report on Public Debt in Ireland includes, amongst others, the debt-to-GNI* metric, as suggested by IFAC.