Mr. Seamus Coffey:

One restriction or limit on the fiscal rules is that there might not be a benefit in the bad times for setting aside resources in the good times. The fiscal rules are based on a relatively flat use of fiscal resources and the estimates are pro-cyclical so the rules allow for more to be done in the good times and are somewhat restrictive in the bad times. It would be different if there was a well functioning and well designed rainy day fund. One reason to have it is for use in the event of a rainy day. If the fiscal rules were to prevent that, it would limit the effectiveness of having that policy because the reason money is set aside in good times is to use it in bad times.

We looked at various ways in which that can be achieved. The fiscal rules themselves are perhaps too restrictive and do not give sufficient benefit to setting aside resources in the good times. There are various ways it can be taken into account. One suggestion would be to count it as spending when the revenue is raised and when the rainy day fund gets the money put into it in the good times so that it makes the deficit appear worse at those times. Then it is just spent at a subsequent time so it does not count against the deficit in the future and the capacity is there to spend it. However, because of the way the system of accounts is designed and because of the way the fiscal rules are designed, that would be difficult to achieve. It is about striking the balance between getting the benefit in the bad times for setting aside the resources in the good times. There are various ways in which it can be done. We have just set out a couple of proposals but it would require decisions at a higher level to be made in order for that to be operable. It just shows that a mechanism such as a rainy day fund can be effective.