Professor John McHale:

In terms of the debt target, that is somewhat down the road because it will take some time to bring the debt ratio down. It is useful to remember that in 2007 we had a debt-to-GDP ratio of 25%. That was not enough to avoid the crisis and we ended up losing our access to market borrowing, even though we went into the crisis with a very low debt-to-GDP ratio. However, it probably was essential to us avoiding default. We could have had a much more serious crisis if the State had been forced to default. One can see that even with a debt-to-GDP ratio of 25% to begin with one can still get into trouble. Currently, we estimate that if one makes an adjustment to GDP which we do based on revenue - we can get into the technical details of that if the Deputy wishes - the debt-to-GDP ratio last year we estimate at 97% of GDP. It is a very different situation from the one with which we went into the crisis. That is an unsafe debt level. We are not forecasting that a crisis is going to occur in the near term, but one can think of many things that could go wrong, ranging from a new crisis in the eurozone and the effects of Brexit being much more serious to a long list of risks to which one can point.

What we want to do is bring that debt ratio down in a phased way, and first down in the direction of 60% of GDP. It is worth noting that under the rules that currently exist, we have a medium-term budgetary objective to get the deficit, adjusted for cyclical factors, down to 0.5% of GDP. Once one goes below 60% of GDP one is allowed to run a deficit of 1% of GDP. If one kept at that and there was a nominal growth rate in the economy of 5%, one would eventually converge down to a debt-to-GDP ratio of just 20% of GDP, which is a little below what we had when we went into the crisis. Even under the current rules we are on a path to bring the debt down to much lower and safer levels. Whether it is necessary to have a supplementary target for the debt beyond that, as below 60% of GDP, it might be helpful, but already we are on a path, if we stick with the rules, to a debt-to-GDP ratio that would be in very safe territory. It is still a long way away to get there, but the important thing is that we bring it down in a phased way so that we reduce the risk the economy faces.

We note in the report that the size of the package is more than the €1 billion. There is €900 million of spending already committed for demographics, the Lansdowne Road agreement and some capital spending. There is also the €540 million that was announced for this year in June, so the overall package, taking together the new measures taken in 2016 and planned for 2017, is €2.4 billion. From an economic point of view, we still see that as a slightly contractionary stance. It is lower than what could be possible, given the underlying growth in the economy, but that is necessary, given that we are still in the process of bringing the deficit down towards the medium-term objective of 0.5% of GDP. We need to do that if we are going to have that further improvement in the deficit. Our view is that that is still a prudent policy in terms of what is being planned, but it is now at the limit. Our concern is that we basically said the same thing last year based on the planned use of the €1.5 billion of fiscal space, but the overall package turned out to be twice that, given the increases in spending announced through the Supplementary Estimates process. We would not like to see a repeat of that. That is why we are drawing attention to it. However, if the Government were to stick to that, we would see that as being consistent with a prudent policy and with the policy of bringing the deficit down and putting the debt on that phased path towards safer levels.