Thursday, 25 October 2018

Ceisteanna (95)

Róisín Shortall


95. Deputy Róisín Shortall asked the Minister for Finance the projected fiscal space for each of the years 2019 to 2024 net of known carryover costs, public pay deal commitments, national development plan commitments, demographics, rainy day fund transfers and other pre-commitments. [44423/18]

Amharc ar fhreagra

Freagraí scríofa (Ceist ar Finance)

At present, the fiscal rules - both the structural balance rule and, especially, the expenditure benchmark rule - are not well-suited to guide budgetary policy, given our position in the economic cycle.  I highlighted this in the Summer Economic Statement and I note that the Irish Fiscal Advisory Council, in its pre-Budget statement, also highlighted this issue. 

Essentially, the problem boils down to the fact that full allocation of 'fiscal space' would lead to a repeat of pro-cyclical budgetary policies that would threaten the living standards of Irish people. Pro-cyclical budgetary policies should be avoided; this is especially true when we are facing serious issues such as the exit of the UK from the European Union (and a non-negligible possibility of a 'disorderly' exit). 

With this in mind, the more important framework for guiding fiscal policy is 'fiscal stance' - what is right for the economy at a particular point in time, so as to support sustainable, incremental improvements in public services and living standards.

The correct 'fiscal stance' can only be ascertained once account is taken of the position in the economic cycle.  If the economy is operating at full capacity, then it would be incorrect to adopt an expansionary budgetary policy. On the other hand, if there is spare capacity in the economy, then it may be appropriate to use tax and expenditure policy to help absorb the spare capacity. 

Given the many issues facing the economy and the heightened level of uncertainty (such as what form the UK's exit from the EU will take), it is only possible to assess the appropriate fiscal stance on a year-to-year basis at present.