Professor John McHale:

That is something on which we are looking for further clarity. I will give the Deputy some background on the rules that will apply to us post-2015, assuming we make a successful exit from the excessive deficit procedure. Currently, we are in the corrective arm of the Stability and Growth Pact, also known as the excessive deficit procedure. Once we are out of the corrective arm we are into what is called the preventive arm, which is a different set of rules. The preventive arm is largely mirrored in our own national budgetary rule, which is part of a fiscal responsibility Act that effectively implements the fiscal treaty.

Under the preventive arm, one either must be at what is called one's medium-term objective - which in Ireland's case is a structural budget balance - or one must be on an adjustment path to that medium-term objective. While the minimum required adjustment is 0.5% of GDP, the Commission has noted that for high-debt countries, a reduction of 0.6% of GDP is required. If one considers the plans set out in the stability programme update, SPU, for the period 2016 to 2018, it provides a total adjustment in the structural balance of 2.7% of GDP. However, if one implemented the reduction of 0.6% each year, that would amount to a cumulative adjustment of 1.8% of GDP. As this involves an additional fiscal tightening in nominal terms of approximately €2 billion, it is quite significant. Consequently, it is not at all clear at this point that it actually is required to get to that structural balance by 2018. If one follows the 0.6% annual reduction, one potentially could do it by 2020 or even possibly by 2021. We have had extensive background discussions with both the Commission and the Department of Finance and based on those discussions, we really still do not have a clear picture as to how the 2018 date has been set. The main thing for which the Irish Fiscal Advisory Council is asking is to set out a clear rationale as to how that relatively early target date was decided on, because against this background of strong expenditure pressures, we do not wish to be setting targets that in a sense are needlessly ambitious, given the pressures that will create.

If I may add one last point in this regard, given the council has tended to call for more and not less fiscal adjustment, it may seem a little unusual to members that in this case, we are worried about being too ambitious in terms of the fiscal targets. However, this is all based on having in place a credible fiscal framework. If such a framework is in place, hopefully with buy-in across the political spectrum, as well as from the public, it gives more space basically to follow the requirements of that framework and to avoid being obliged to do more to convince debt markets that their investments are safe. However, assuming that such a credible fiscal framework is in place, following the requirements of that fiscal framework should be sufficient to ensure ongoing borrowing capacity for the State.