Mr. Carlos Martínez Mongay:

In my interpretation, the Deputy's second question - taking into account that revenues are higher than expected and there is this positive surprise of extra revenues on one hand and some expenditure needs on the other - was whether the extra revenues should be used to cover expenditure needs. That is what I understood from the Deputy's reasoning. The key issue is that most expenditures are permanent, while part of these revenues are extraordinary. There is a risk that extraordinary revenues will be used to finance something which is permanent. That would then have a permanent effect on total expenditure.

That is precisely the reason the European Commission is proposing not to be procyclical in good times. The economy may be overheated if all the higher revenue from the good times is spent. As the growth rate in Ireland is high compared with the potential growth, the country is in the positive phase of the cycle. The European Commission is proposing on that basis not to use permanent revenues. Some of the increases in revenues do have a permanent nature, but the part of the revenues that are purely cyclical will disappear once the economy slows down. I mention that because the Deputy referred to it. That is precisely the idea with reaching the MTO where the structural balance is zero given the conditions of each country.

In Ireland's case, given its high growth, structural balance is considered to be in equilibrium when the structural deficit is 0.5% of GDP. That will be reached next year. The idea is that we then allow automatic stabilisation to operate so that permanent increases in expenditure are not adopted without being financed by permanent revenues. That is the essence of the fiscal rules in the European Union once countries have reached the MTO. Discretionary increases in expenditure should be matched by discretionary increases in taxation - but in permanent taxes and not in taxes associated with extraordinarily high revenues.