Dáil Éireann Debate, Tuesday - 26 June 2018
115. Deputy Michael McGrath asked the Minister for Finance if a country is not at its MTO, if it is obliged under the fiscal rules to apply a convergence margin; the way in which the convergence margin is calculated; the amount in monetary terms of the convergence margin for 2019 (details supplied); and if he will make a statement on the matter. [27701/18]
Amharc ar fhreagraUnder the Stability and Growth Pact, Member States must attain a country-specific Medium Term budgetary Objective (MTO) which is set in structural terms. For Ireland this is currently set as a structural deficit of 0.5 per cent of GDP.
When a Member State is not at its MTO, a convergence margin applies. The process of calculating this convergence margin is detailed in the 2018 Edition of the Vade Mecum on the Stability and Growth Pact. This may be found at https://ec.europa.eu/info/publications/economy-finance/vade-mecum-stability-and-growth-pact-2018-edition_en.
The convergence margin is set by the Commission, following its assessment of the Stability Programme. It is calculated on a country-specific basis and is designed to ensure that the MTO is achieved in a suitable manner.
The convergence margin for 2019 is set out in table 3 of the 2018 Summer Economic Statement and reduces the reference rate of potential growth by 0.6 percentage points.
In nominal terms this equates to c. €400 million.
Of course, had there been no convergence margin for 2019 and this money was spent, it would have increased the deficit (both headline and structural).
As I have said, the increases permitted under the fiscal rules represent money that we would have to borrow. Budgetary policy will be formulated on the basis of what is right for the economy at this stage in the cycle and not by rules that would increase borrowing.
