Dáil Éireann Debate, Wednesday - 20 November 2013
6. Deputy Richard Boyd Barrett asked the Minister for Finance the position on Ireland's obligations under the fiscal treaty and other EU rules in terms of debt and deficit reduction, budgeting and monitoring following an exit from the troika programme; the implications of these obligations for future budgets; and if he will make a statement on the matter. [49253/13]
Amharc ar fhreagraThe Minister has been celebrating his plan to exit the troika programme. Some of us believe this is a complete mirage, particularly in the light of the various budgetary surveillance and monitoring and post-programme monitoring rules that will be applied by the European Union and the troika. Furthermore, we will also be obliged to meet requirements to reduce our deficit and pay down huge debts that are not ours. We must do this over a specified period and in line with the fiscal treaty, for which the Government encouraged the people to vote. Will the Minister spell out what precisely our obligations will be under the EU rules for reducing both our debt and the deficit, particularly in the context of the fiscal treaty? Will he also indicate what the position will be on the issue of budgetary surveillance?
Ireland is on track to exit the EU-IMF programme of financial support at the end of this year. Until the end of 2015, Ireland will remain subject to the requirements of the corrective arm of the Stability and Growth Pact. These requirements are for a general Government deficit that does not exceed 5.1% of GDP in 2014 and 2.9% of GDP in 2015. Budget 2014 targets a general Government deficit of 4.8% of GDP next year and we remain on track to correct our excessive deficit in 2015. These are legal requirements, but, even leaving them aside, it is imperative that we bring our deficit down to more sustainable levels. When the excessive deficit has been corrected, the public finances in Ireland will be subject to the preventive arm of the pact and the Treaty on Stability, Coordination and Governance, TSCG. The preventive arm of the pact requires member states to be at, or to be adjusting sufficiently rapidly towards, their country-specific medium-term objective, MTO. Ireland's MTO is a balanced budget in structural terms. From 2016 onwards, therefore, the general Government deficit, after adjusting for the impact of the cycle and other once-off factors, will be required to converge at a sufficiently rapid pace towards balance, at a minimum rate of 0.5% per annum. Revisions to the preventive arm under the six pack introduce the concept of the expenditure benchmark. The rationale for this is to ensure public expenditure is not permanently increased on foot of temporary tax or other revenues.
From 2016 onwards, the requirements of the debt correction rule, as laid out in both the pact and the TSCG, will also begin to apply. The debt correction rule states debt in excess of 60% of GDP must be reduced by an average of at least one twentieth of the difference between the actual debt ratio and 60% of the GDP threshold per year based on changes in the debt ratio over three years. In the context of the debt correction rule, there is a transition period for member states such as Ireland that were subject to an excessive deficit procedure as of November 2011. This means that the one twentieth rule will only fully apply from 2019 onwards. In the interim , satisfactory progress in reducing the debt-to-GDP ratio will be needed and this will be assessed by the European Commission and ECOFIN. My Department projects that having reached and maintained our MTO of a structural budget balance, the debt correction rule will, under reasonable growth assumptions, be achieved.
Ireland will be required to implement fiscal policy that keeps it on the adjustment path towards its MTO of a balanced budget, in structural terms, and sustains it thereafter. Ireland will also be required to comply with the expenditure benchmark in the Stability and Growth Pact. This will limit the growth in nominal expenditure to very modest levels. However, it should be noted that complying with our fiscal requirements in the post-2015 period will not necessarily require further tax increases or cuts in nominal expenditure because constraining spending growth to comply with the expenditure benchmark will help considerably towards this end.
The sheer length of the Minister's reply and the level of detail provided tell a story. On leaving the programme, Ireland will be subject to just as rigorous a regime of budgetary surveillance, monitoring and debt and deficit reduction as it endured under the programme. Behind all the jargon, technocratic language and interesting names for the various programmes lies the fact that we will have to pay off €100 billion of debt at a rate of 5% per annum after we exit the programme. The Minister should spell that out in clear language. He indicated there will be a lead-in time of three years. However, during that lead-in period, we must move towards a position of paying off one twentieth of €100 billion or €5 billion per annum. The growth the Minister had hoped would rescue us from this scenario has not materialised as all the Department's forecasts have been wrong. Does this not mean that we are faced with a decade of further austerity, even after our so-called exit from the programme?
Anything I communicated to the Deputy in my reply is not new information and arises from the arrangements that have been in Europe. All 18 Eurogroup members are subject to the new rules. The survival of the euro is a close run thing, which has resulted in agreements being made across the eurozone which, in their totality, effectively amount to a fiscal union as well as a currency union. What I spelled out were the elements of the fiscal union that will apply across the eurozone.
The next element to deal with the crisis is banking union. We are moving from a currency union to a fiscal union and we will subsequently move to a banking union. This is the way in which Europe has progressed. While Deputy Boyd Barrett probably does not agree with what has taken place, I am simply describing the factual position. The simplest way of putting it in ordinary language is that we cannot increase spending by more than the growth rate in the economy. If we increase expenditure by more than our growth rate, we will be in trouble as we will run foul of the new rules.
I understand that the information is not new but the issue is not being clarified for citizens. As the Minister correctly stated, if growth does not materialise, Ireland will be in deep trouble because, unlike every other country in Europe, we have a debt-to-GDP ratio of 120% and a debt-to-GNP ratio of 150%. The requirement to pay down €200 billion in debt that is not ours will be a noose around our necks. If the growth projections do not materialise - and there is little sign of them materialising - we are banjaxed. The reality of this needs to be spelled out to people and radical measures taken to address the failure of Government policies to generate economic growth because austerity is killing growth.
The budget projected the economy will grow by 2% next year. The OECD published growth projections for the eurozone yesterday, which indicated that the Irish economy will grow by 1.9% in 2014. This figure is very close to our budgetary figure and gives us a reasonable degree of optimism that our figures will come in on target.
