Mr. Seamus Coffey:

There should be flexibility to deal with and respond to the environment in which a government and a country finds itself. We are not talking about restrictive parameters that cannot change or be adjusted. If we go through an inflationary period, there should be the ability to respond to that. What we are looking for with a five-year framework is a structure for what is happening in normal times so that we do not just glide along or end up in a position that has not really been intended or planned. When it comes to problems with public finances, they tend to build up during the normal or the good times and then get exposed when a problem hits. Generally when there is a problem, whether it is an inflationary or recessionary problem, we know what the appropriate response is but the key is to have the capacity to actually deliver that response. We saw with Covid and the recent bout of inflation that various means were taken to allow governments to spend additional money, including through a relaxing of policy from the ECB and the suspension of the fiscal rules. Governments right across the EU stepped in and were able to expand their government spending in response to these significant crises. What is needed is the capacity to do so. When a global or widespread shock like Covid or the energy crisis driven by the Russian invasion of Ukraine hit, there was a global response.

The issue from a national perspective is if we get hit with a unilateral shock that only affects us - whether that is to do with FDI, corporation tax or the nature of the economy - and we then require the Government to have the capacity to step in. If it is a unilateral shock we might not have the support of the ECB and the fiscal rules might not be relaxed for us. We are dependent on having that capacity built up ourselves. It is during the good times, the normal times, that we want a framework and guidance from a fiscal rule because when the shock comes there should be a response and there should be flexibility. The key is to make sure we have the fiscal capacity to do the right thing. We have long seen Ireland be hit by shocks and not have the fiscal capacity to respond. We saw it when the Government spent too much money in the late 1970s and then the correction required a protracted recession in the 1980s. We saw it again in the run-up to 2008 whereby problems built up during the good times and when the recession came, the fiscal policy exacerbated it by increasing taxes and cutting spending. However, we saw the good side of fiscal policy with Covid and the energy shock, where the Government was actually able to step in. Certainly flexibility has to be there but if we are going to experience a unilateral shock, we have to make sure that we have both the flexibility and the capacity to respond. That is why we want these guidelines or frameworks in the more normal times to actually allow us to deal with some of the problems that Deputy Canney just described.