Mr. Seamus Coffey:

Criticisms of the CAM have been an ongoing point made by the fiscal council, as well as by the Department of Finance itself in documents dating back to the early 2000s. We have addressed it through our endorsement process of examining the real side of the economy in respect of the expenditure approach, consumption, investment etc.

It also looks at the supply side and the potential of the economy. The view of the Irish Fiscal Advisory Council, IFAC, and others is that the CAM does not give a good view of the supply side of the economy. We provide and publish alternative estimates in our report, as can be seen. Over the last years they have been very divergent from the estimates that appear in the budget documents which do not appear plausible and, at present, seem to be the base for fiscal policy. They would indicate that the economy has been overheating to a significant degree since 2015 with a positive output gap of over 2%. There is a potential for 2% of all economic activity in Ireland to be on a non-sustainable footing and that could decline. The estimates have shown that has been declining over the past couple of years but that does not tie to our view of the economy. We think the view the Department of Finance and other agencies might have is that the economy is recovering from a very deep downturn, that there is remaining potential in the economy and that it is not the case that we are already overheating, that there is still slack in the economy and that the output gap remains negative. Our estimate for 2017 is that there is a negative output gap.

As we said earlier when asked about our interaction with the Department of Finance, there is ongoing work, both by the Department of Finance and ourselves, to get a better estimate of this. We recognise that the commonly agreed methodology has legal underpinnings within the Stability and Growth Pact so there is a necessity to estimate it but one is not limited to it. Other approaches can be taken. We have assessed a range of other approaches, many of which we feel are superior to the commonly agreed methodology and we hope the Department of Finance would move towards using some of those.