Professor John McHale:

I thank Deputy Boyd Barrett for the questions. In terms of his first question, the Government projects currently that we will be back to structural and actual budget balance between 2018 and 2019. As I have said, that is post-2016 and not based on a fully specified plan. If there was minimum compliance with the fiscal rules, we estimate that one would reach structural balance by 2020. As of now and certainly for 2016, we consider that minimal compliance would be an appropriate policy. We do not advocate going beyond that and reserve judgment about whether it would be an adequate policy for the later years. To the extent that it is an adequate policy, following the rules to do minimum compliance with them and getting to structural balance by 2020 would be an appropriate policy. In that sense, there is no gap between what Deputy Boyd Barrett said Michael Taft was advocating. Certainly, compared with the plans the Government has laid out, which involve very large reductions in the structural deficit post-2016, that would create more space. However, we do not feel they are real plans in the sense that they do not take into account the planned tax reductions. Assuming minimum compliance remains an appropriate policy, reaching structural deficit by 2020 looks appropriate at this stage.

The Deputy is absolutely right about the measurement of the structural deficit. In the run-up to the crisis, the measures of the structural deficit and associated measures of the output gap were extremely poor. In retrospect, we know that we were in an unsustainable situation with the economy operating well above its sustainable projection and the measures of the output gap did not pick that up at the time. As the Deputy said, they essentially gave us nonsense measures of the structural deficit. As such, one of the things we have been working very hard on at the council is to come up with better measures of potential output and, therefore, the output gap and, therefore, the structural deficit. We are working on measures that take into account broader sets of imbalances in the economy, including imbalances in the housing market, imbalances potentially in credit markets, and factors relating to the size of the current account imbalance. We had a very large current account deficit prior to the crisis, a sign of imbalance that was not taken into account at the time. The Deputy's criticism about measurements of the structural deficit and other key aggregates is bang on. To ensure we do not make those kinds of mistakes again, we must improve our ability to measure these things. We and others are working very hard on that.