Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

I move: "That the Bill be now read a Second Time."

I thank the House for agreeing to discuss this Bill today. As Deputies will be aware, the Irish people voted to ratify the stability treaty or, to give it its full title, the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, in a referendum held on 31 May 2012. The aim of the stability treaty is to improve the stability of the euro and provide for better co-ordination between the participating countries and agreeing on shared ways of managing our economies.

To ensure that the electorate was as fully informed as possible in the context of the referendum, I published the general scheme of the Fiscal Responsibility Bill 2012 on 26 April 2012. The general scheme set out the draft legislation that would implement key provisions of the stability treaty, subject to the will of the Irish people. The key purpose of this legislation is to implement the fiscal rules in the stability treaty. These rules are sensible and prudent and represent a responsible approach to budgeting.

I would like the House to note that, as per our programme for Government commitment, I established the Fiscal Advisory Council on a non-statutory basis in June 2011 to assess the official macroeconomic and budgetary forecasts and the fiscal stance. Now, as part of the Fiscal Responsibility Bill, I am continuing the process by putting it on a statutory basis and assigning it additional responsibility for monitoring and assessing compliance with the fiscal rules to which we have signed up under the stability treaty. These enhancements of the council's status and roles are important reforms, which will assist in rebuilding the State's financial market credibility.

The Fiscal Responsibility Bill is part of an overall move towards more stable and secure economic governance throughout Europe. Many steps have been also taken to address the problems caused by the acute economic crisis on a Europe-wide level to encourage recovery and to ensure the mistakes of the past cannot be repeated. The stability treaty is an important part of this effort, and the Irish people agreed.

The EU has already fundamentally strengthened the economic rules that apply, particularly in the group of countries which use the euro, through reforms included in the six-pack, consisting of five regulations and one directive, which covers fiscal surveillance and macroeconomic surveillance. The reforms strengthened the Stability and Growth Pact, reinforcing its corrective elements. Other major steps were taken to strengthen the euro area economy. Rescue mechanisms were put in place from which member states that experience difficulties, such as Ireland, could receive loans when they could not raise money from the markets at a sustainable cost. The EU has worked to stabilise Europe's banks and has refocused its efforts to ensure that economic growth and job creation are its top priorities. Ireland has participated fully in this work. These aims were clear in the stability treaty. According to its first article, its aim is to "support the achievement of the European Union's objectives for sustainable growth, employment, competitiveness and social cohesion". It contributes to these objectives through budgetary rules and arrangements for countries using the euro to work closely together and to support each other.

The stability treaty will enter into force on 1 January 2013, provided that 12 euro area member states have deposited their instrument of ratification, or on the first day of the month following the deposit of the 12th instrument of ratification by a euro area member state, whichever is the earlier. At present, eight euro area member states and three other European member states have ratified the stability treaty. Ireland will deposit its instrument of ratification as soon as the Fiscal Responsibility Bill 2012 has been enacted.

Before I turn to the specifics of the stability treaty and the Fiscal Responsibility Bill 2012, I would like to say a few words on recent developments. The ESM treaty, which was related to the stability treaty, has now been ratified by all euro area member states, representing the full subscriber capital base, and entered into force on 27 September. This contributes to restoring confidence in a stable euro by ensuring a permanent rescue fund is in place for euro area member states, should it be necessary.

In other measures to improve the quality and control of expenditure, the Ministers and Secretaries (Amendment) Bill 2012 was published at the end of September. The purpose of this Bill is to provide for medium-term expenditure management through the provision of multi-annual Government expenditure ceilings and multi-annual ministerial expenditure ceilings. It will amend section 17 of the Ministers and Secretaries (Amendment) Act 2011 and provides for the Government, following a proposal from the Minister for Finance, to approve an upper limit on Government expenditure, which includes the aggregate amount of voted expenditure and the expenditure of the Social Insurance Fund and the National Training Fund, for each of the following three financial years. It also provides that the Government shall, following a proposal from the Minister for Public Expenditure and Reform, approve the amount of Government expenditure to be apportioned into "ministerial expenditure ceilings" for each of the three financial years concerned.

The Bill before the House closely follows the articles of the stability treaty accepted by the Irish people. A key change from the general scheme involves providing the specifics of the correction mechanism to be triggered automatically in the event of significant observed deviations from the medium-term objective or the adjustment path towards it. These specifics, which concern the nature, size and timeframe of the corrective action to be undertaken, could not be included in the general scheme because the common principles required under the stability treaty were not at that time available. However, the European Commission subsequently adopted them in June. In addition to the correction mechanism, the common principles also covered the role and independence of the institutions responsible at national level for monitoring the observance of the rules and these elements have now been reflected in the Bill.

The key elements of this Bill are as follows: the introduction of a budgetary rule; the introduction of a debt rule; the requirement to implement a correction mechanism if there is a significant deviation from the budgetary rule; and placing the Fiscal Council on a statutory basis, ensuring its independence and ability to complete the relevant competencies.

I will now set out full information on the Bill, section by section. The purpose of the Bill is to provide for the implementation of Articles 3 and 4 of the stability treaty, including the establishment of the Irish Fiscal Advisory Council on a statutory basis, as it will be the "independent body" responsible at national level for monitoring compliance with the fiscal rules. Only Articles 3 and 4 of the stability treaty require implementation by way of national legislation as the remaining articles of the stability treaty are binding obligations at international law that do not require to be reflected in national law.

Section 1 is the interpretation section. Section 2 requires the Government to endeavour to comply with the fiscal rules, which are set out in the subsequent sections. This section also provides that the official macroeconomic and budgetary forecasts prepared by the Department of Finance include all the data needed to assess if the Government is complying with the budgetary rules.

Section 3 outlines the budgetary rule required by Article 3 of the stability treaty. One of two conditions must be satisfied. These conditions require that the budgetary position of general government is in balance or in surplus, and this will be deemed to be the case if the medium-term budgetary objective set under the Stability and Growth Pact is achieved or, if it is not, that it is on the adjustment path towards adhering to our medium-term budgetary objective. In line with the stability treaty, the section allows for neither requirement to be met in the event of exceptional circumstances. The definition of exceptional circumstances as per the stability treaty means an unusual event outside the control of the State which has a major impact on the financial position of the general government or a period of severe economic downturn, provided that the temporary deviation of the State does not endanger fiscal sustainability in the medium term.

Deputies should be aware that the medium-term budgetary objective set under the Stability and Growth Pact is expressed in structural terms. This means that the deficit target excludes one-off and temporary measures and is cyclically adjusted.

Section 4 deals with the debt rule specified in Article 4 of the stability treaty. The requirements of the debt rule are already law under Council Regulation No. 1467/97, which was amended by the EU six-pack of reforms.

However, as it is specifically included in the stability treaty, we are providing for its implementation in domestic law through this Bill. The text accomplishes this by direct reference to the relevant EU regulation. This eliminates the possibility of drafting a provision that could be inconsistent, and ensures better adherence to the regulation. The EU regulation states that debt in excess of the 60% debt-to-GDP ratio must be reduced by at least one twentieth per year based on changes in the past three years. It goes on to provide for a transition period for member states, including Ireland, that were subject to an excessive deficit procedure on 8 November 2011. This transition period means that the general rule will only apply three years after the correction of the existing excessive deficit. Our existing excessive deficit will be corrected in 2015 when our general government deficit is targeted to be under 3% of GDP. This means that the one twentieth rule will fully apply in 2019. In the meantime, it is required that there is satisfactory progress in reducing the debt-to-GDP ratio and this will be assessed by the Commission and ECOFIN.

Section 5 provides for the requirements in Articles 3.1.a and 3.1.d of the stability treaty on the setting of the medium-term budgetary objective or MTO under the Stability and Growth Pact. The MTO results from the requirements of Council Regulation No. 1466/97. It is a calculated figure and what the stability treaty, and this section, state is that notwithstanding the result of the calculation, the lower limit of the MTO is an annual structural deficit of the general government of minus 0.5 % of GDP. In line with the stability treaty, the section provides that when the debt-to-GDP ratio is significantly below 60% of GDP, the lower limit is changed to minus 1% of GDP. In most countries, this situation will not arise for the foreseeable future. Ireland's current MTO is minus 0.5% of GDP.

Section 6 has been changed substantially from the general scheme, as it provides for the correction mechanism that member states are required to put in place under the stability treaty. The correction mechanism has been drafted in light of the now-available common principles from the European Commission. This section provides that the Government shall present a time-bound plan that specifies the corrective revenue and expenditure measures it will take if fiscal performance significantly deviates, or is projected to deviate significantly, from the medium-term objective or from the agreed convergence path towards that objective. Reference is made in the section to Article 6.3 of Council Regulation No. 1466/97, which defines a significant deviation as 0.5% of GDP in a single year or 0.25% of GDP in two consecutive years.

The correction plan must be consistent with recommendations made to the State under the Stability and Growth Pact. Provision has been also made in this section for the Government to lay a statement before the Dáil outlining the steps it intends to take if a significant deviation is likely to occur in the future. This was added into the Bill as the common principles allow for an option for either ex-anteor ex-postactivation of the correction mechanism. Credible fiscal management suggests that it would be prudent to address both circumstances. This is a sensible and prudent measure, as it would be very difficult for the Government to refuse to take action on an ex-ante basis if, for example, its own forecasts projected a significant deviation.

Section 7 provides for the establishment of the Irish Fiscal Advisory Council or Fiscal Council on a statutory basis, which will operate in accordance with the Schedule. Section 8 provides that the Fiscal Council shall be independent in the performance of its functions and assigns it the function, as required under the stability treaty, of monitoring compliance by the Government with the duty imposed on it by section 2 of the Bill. In light of the finalisation of the common principles, some further clarification was required in the Bill on the duties of the Fiscal Council in relation to the stability treaty. The common principles require that the Fiscal Council's monitoring and assessments should cover whether there has been a significant deviation from the agreed fiscal targets; exceptional circumstances have begun or ceased; and if a correction is proceeding in accordance with the corrective plan.

The common principles also require governments to comply with those assessments or explain publicly why they are not complying. Provision has been made to fulfil this requirement. Provision must be also made for the other functions already assigned to the Fiscal Council by Government. These functions, which were included in the general scheme, are to assess the official macroeconomic and budgetary forecasts of the Department of Finance and assess the appropriateness of the fiscal stance of each budget and stability programme. The Fiscal Council is required to publish its assessments, within ten days of giving a copy to the Minister for Finance.

Section 9 provides for the regulation-making powers required by the Bill. A residual power to make regulations if the common principles change has been retained but it can be used only if the resulting changes are not substantive. Section 10 is the standard section for expenses incurred in the administration of the Act. Section 11 provides for the Short Title and the commencement provisions.

The Schedule sets out the provisions with regard to the establishment and operation of the Fiscal Council, including membership, terms of office and staffing. These measures are to ensure the Fiscal Council's independence is protected and guaranteed, which is vital to the performance of its role. In addition to measures which I will detail further, the Fiscal Council's mandate is also protected, and cannot be altered without legislative action.

The Fiscal Council will have five members appointed for staggered terms of four years. That does not include the current members, some of whom will serve shorter terms in order to rotate their end dates. The Schedule also sets out the details of appointment of members of the Fiscal Council. These members will be chosen with regard to the desirability of their having competence and experience in domestic or international macroeconomic or fiscal matters and, to the extent practicable, ensuring an appropriate balance between men and women in the membership of the Fiscal Council.

There are a number of key differences in the provisions for this body compared to most other non-commercial State agencies. These differences result from the need to ensure the Fiscal Council meets the independence requirements of the common principles. The principal issues are that the termination of the appointment of a Fiscal Council member by the Minister on the grounds set out in section 4(2) of the Schedule will require a motion of approval from Dáil Eireann; and the Fiscal Council will be funded from the Central Fund for expenditure incurred in the performance of its functions up to a ceiling of €800,000 per annum, which will be indexed to the Harmonised Index of Consumer Prices. This ensures that the Fiscal Council's annual budget is guaranteed unless a future Oireachtas decides to amend this provision.

The purpose of the Bill is to give full effect to the decision made by the Irish people in the referendum on the stability treaty. The Bill will facilitate stable economic governance in Ireland and ensure more controlled fiscal structures going forward. The Bill will also allow us to ratify the stability treaty, in line with our fellow euro area member states, which is in the interests of this country and the euro area. Therefore, I urge Deputies to support the Fiscal Responsibility Bill 2012.

I commend the Bill to the House.

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