Mr. Seamus Coffey:

To the extent that the increase in corporation tax reflects increases in the economy and in our long-run potential growth rate, then it will feed into the available resources that can be used on a sustainable basis. If resources are once-off or volatile and not of a recurring nature, then they should not be used. Let us suppose the economy continues to grow strongly and part of that growth comes from the FDI sector and this feeds into our potential growth rate. In that case it will feed in to the calculations using the expenditure benchmark, the ten-year potential growth rate. In the long run it will form part of those, but not year to year.

Deputy McGrath asked about the rainy day fund. This is something that I and the council are in favour of. There are significant issues over how it might operate. We see a rainy day fund having a role to play in setting countercyclical fiscal policy. We do not necessarily need a rainy day fund for that, but it can be an element that feeds into it to allow us to lean against the wind. If the economy is performing strongly, as it is now, we do not have to use all the available fiscal resources. Problems could potentially be coming down the track. For example, in the case of Brexit some years down the line, only God knows what will happen over a five, ten or 15-year period. If we have the capacity to build up fiscal resources now, it would be a benefit to have them in reserve.

There are operational issues. If we make savings now, how can we ensure we can avail of them in future? One issue with the expenditure benchmark is that if we have a certain amount of available fiscal space and we do not use it, we cannot put it in the bank, so to speak. We cannot draw on it the following year. The calculation is done each year on a separate basis in respect of how we can increase spending in a given year. Under the rules at present, if we do not use it, it is as if we lose it. The incentive is to use the available fiscal space every year. The rules themselves are not conducive to the establishment of a countercyclical rainy day fund.

We were promised a paper on that from the Department of Finance and we believe work has been undertaken in that direction. The stability programme update suggests that the work is ongoing, and we hope that paper will be published in order that we can assess how a rainy day fund might operate, given the constraints of the fiscal rules and the objective, as we see it, of a move to a countercyclical policy in Ireland.