Mr. John McCarthy:

There is quite a lot in that. I will not stray into the policy space but I will do my best to answer the Deputy’s question.

The Deputy is correct that from next year onwards we will move into the preventive arm of the pact. We will move from assessing the headline deficit to progressing and improving the structural deficit. Under the reforms of the Stability and Growth Pact introduced in 2011 as part of the six pack rules, a complementary pillar was introduced. It is called the expenditure benchmark. What it is trying to do in terms of operation is to ensure that expenditure moves in line with growth in the tax base, the tax base being determined by the potential growth rate of the economy. It is designed to address situations like those which prevailed in Ireland and Spain where expenditure was increased permanently on the basis of cyclical revenue. That is the reason for looking at trend growth rate in the tax base over a ten year horizon. It is the rationale for introducing this expenditure benchmark.

Initially, in terms of the code of conduct - it is not a legal document but more of a gentleman’s agreement as to how this will be operational - it was agreed that in order to give more certainty, the ten year timeframe would be assessed every three years. The ten year timeframe has backward looking and forward looking elements. In Ireland we have a problem in that our potential growth rate is very pro-cyclical so when the economy went south so did potential.