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

Ireland is on track to exit the EU-IMF programme of financial support at the end of this year. Until the end of 2015, Ireland will remain subject to the requirements of the corrective arm of the Stability and Growth Pact. These requirements are for a general Government deficit that does not exceed 5.1% of GDP in 2014 and 2.9% of GDP in 2015. Budget 2014 targets a general Government deficit of 4.8% of GDP next year and we remain on track to correct our excessive deficit in 2015. These are legal requirements, but, even leaving them aside, it is imperative that we bring our deficit down to more sustainable levels. When the excessive deficit has been corrected, the public finances in Ireland will be subject to the preventive arm of the pact and the Treaty on Stability, Coordination and Governance, TSCG. The preventive arm of the pact requires member states to be at, or to be adjusting sufficiently rapidly towards, their country-specific medium-term objective, MTO. Ireland's MTO is a balanced budget in structural terms. From 2016 onwards, therefore, the general Government deficit, after adjusting for the impact of the cycle and other once-off factors, will be required to converge at a sufficiently rapid pace towards balance, at a minimum rate of 0.5% per annum. Revisions to the preventive arm under the six pack introduce the concept of the expenditure benchmark. The rationale for this is to ensure public expenditure is not permanently increased on foot of temporary tax or other revenues.

From 2016 onwards, the requirements of the debt correction rule, as laid out in both the pact and the TSCG, will also begin to apply. The debt correction rule states debt in excess of 60% of GDP must be reduced by an average of at least one twentieth of the difference between the actual debt ratio and 60% of the GDP threshold per year based on changes in the debt ratio over three years. In the context of the debt correction rule, there is a transition period for member states such as Ireland that were subject to an excessive deficit procedure as of November 2011. This means that the one twentieth rule will only fully apply from 2019 onwards. In the interim , satisfactory progress in reducing the debt-to-GDP ratio will be needed and this will be assessed by the European Commission and ECOFIN. My Department projects that having reached and maintained our MTO of a structural budget balance, the debt correction rule will, under reasonable growth assumptions, be achieved.

Ireland will be required to implement fiscal policy that keeps it on the adjustment path towards its MTO of a balanced budget, in structural terms, and sustains it thereafter. Ireland will also be required to comply with the expenditure benchmark in the Stability and Growth Pact. This will limit the growth in nominal expenditure to very modest levels. However, it should be noted that complying with our fiscal requirements in the post-2015 period will not necessarily require further tax increases or cuts in nominal expenditure because constraining spending growth to comply with the expenditure benchmark will help considerably towards this end.

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