Dáil Éireann Debate, Tuesday - 15 October 2019
144. Deputy Micheál Martin asked the Minister for Finance if he and his officials read the analysis piece by a person (details supplied) on the fiscal treaty and the 2012 referendum in particular; his views on same; and if he will make a statement on the matter. [42006/19]
Amharc ar fhreagraThe article to which the Deputy refers concerns the EU fiscal rules, which are a key component of the architecture of European Monetary Union. The rules aim to preserve national fiscal autonomy but, at the same time, to constrain the fiscal stance of individual Member States in order to ensure fiscal sustainability and prevent negative spill-overs to other participants. The EU’s fiscal rules have been an integral part of our own fiscal framework for a number of decades, dating back to the Stability and Growth Pact in 1997. These rules were strengthened following the crisis, including through the Treaty on Stability, Coordination and Governance, which was approved by referendum in Ireland in May 2012.
Of course, no set of rules is perfect and on Budget Day, my Department published a scoping paper entitled Addressing Fiscal Vulnerabilities. Amongst other things, this paper identifies and outlines vulnerabilities arising from the ‘one-size-fits-all’ approach taken by the European fiscal framework. From an Irish perspective, the fact that the rules are formulated in GDP terms is increasingly problematic. As my Department has outlined on many occasions, GDP overstates the ‘true’ size of the Irish economy and, as such, ratios expressed as a share of GDP give a misleading picture.
In addition, the calculation of adherence to the MTO remains troublesome. This requires estimates of the structural budget balance: the headline balance adjusted for the impact of the economic cycle (cyclical component) and excluding temporary measures. The cyclical component, in turn, requires an estimate of the output gap - an unobserved variable that is calculated using a harmonised, one-size-fits-all approach which does not sit well with the Irish economy. The difficulties inherent in the structural balance are well understood in the EU. In many senses, some of these complexities are a necessary evil, as to promote counter cyclical policies, estimates of the cyclical position of the economy are needed. However, Ireland is more affected than most by these issues given the unique aspects of our economy.
These issues notwithstanding, I am encouraged by recent discussions regarding the fiscal rules at EU level. In particular, I support efforts to increase the transparency, predictability and simplicity of the rules. I, along with my officials, will continue to engage in these talks. That said, I do accept that there are difficult trade-offs involved. This means that finding agreement may be challenging. As such, we must continue to consider the domestic application of the existing fiscal rules.
