Dáil Éireann Debate, Thursday - 9 February 2012
57 Deputy Pearse Doherty asked the Minister for Finance with respect to the annual one 20th reduction in debt-to-GDP ratio outlined in the proposed intergovernmental treaty, if he will confirm if the annual target reduction applies to the excess debt over the 60% debt-to-GDP ratio or to the full amount of debt; and if he will make a statement on the matter. [7433/12]
Amharc ar fhreagra58 Deputy Pearse Doherty asked the Minister for Finance based on current assumptions and projections, if he will indicate the level of adjustment that will be required in budget 2016 to meet the one 20th reduction in our debt-to-GDP ratio as required under the terms of the proposed intergovernmental treaty; and if he will make a statement on the matter. [7434/12]
Amharc ar fhreagra59 Deputy Pearse Doherty asked the Minister for Finance if the one 20th reduction in our debt-to-GDP ratio as required under the terms of the proposed intergovernmental treaty would be a percentage of debt-to-GDP target that would need to be reached each year, that is assuming that the State had a debt-to-GDP ratio in 2015 of 120% that the reduction required under the terms of the treaty would be 3% reduction; and if so, if he will estimate the cost of this reduction in monetary terms; and if he will make a statement on the matter. [7435/12]
Amharc ar fhreagraI propose to take Questions Nos. 57 to 59, inclusive, together.
The debt correction requirement in the new intergovernmental treaty, which will apply to Ireland, as our General Government debt/GDP ratio is currently above 60%, is the same as is already required under the reforms of the Stability and Growth Pact as part of the so-called ‘six pack' of legislative reforms.
Specifically, we will be required to reduce our debt/GDP ratio annually by at least one-twentieth of the difference between the actual rate and the threshold rate of 60%. A transition period will apply for all countries that are currently subject to the excessive deficit procedure on the basis of the deficit criterion, including Ireland. During this transition period, which would last for three years following the correction of the excessive deficit on the basis of the deficit criterion, the requirement under the debt correction rule is deemed to be fulfilled if we are making "sufficient progress" towards compliance.
Based on Budget 2012 projections, the General Government debt/GDP ratio is forecast to peak at 119% in 2013 before declining to 115% by 2015. Ireland will be coming out of the excessive deficit procedure as a result of reducing the General Government deficit below 3% of GDP in 2015 and so the three year transition period referred to above will apply. The precise details as to what will constitute “sufficient progress” towards compliance during the transition period have yet to be worked out between the European Commission and those Member States coming out of excessive deficit.
Furthermore, as there are no specific macroeconomic and fiscal forecasts for the period post 2015, the exact policies that will be required are conjecture at this stage.
In this regard, in terms of the fiscal implications of this debt correction rule, it is important to remember that it is the debt/GDP ratio that is important. In other words, on the basis of reasonable assumptions over the medium-term, we can expect economic growth to do much of the "heavy lifting". Furthermore, it's also worth pointing out that, irrespective of our international commitments, we need to reduce the debt to more manageable levels. Otherwise we will just spend more and more of our revenues on servicing the debt burden, which reduces the amount available to spend on education, health, social welfare, and other areas.
