Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

I am pleased that Members are having this debate for which Fianna Fáil pressed in recent weeks. I believe Members should not be holding it during the graveyard shift of the House, as it warrants much greater attention than it is likely to receive given the hour in which the debate is occurring. However, my overall message for the fiscal council is to continue with and to stick with its work and not to become disillusioned. The fiscal council could not be blamed for believing it is very unloved as an organisation because its advice has been ignored roundly a number of times. However, its contribution to national debate is absolutely vital and it is necessary for the council to continue with that contribution. This is why my party pushed strongly for a debate to be had on the floor of the Chamber of the Parliament as to the advice the council is giving and the decisions taken by the Government in order that people ultimately can consider in the round whether the correct choices have been made.

I want to commend the Irish Fiscal Advisory Council on both its most recent pre-budget report and its work since the council was established in 2011. The fiscal council team is small in number and the overall cost of running the council in modest. Good-quality research and advice does not come cheap but in the context of the many ways in which the State spends its money, the output it gets from the Irish Fiscal Advisory Council can be seen as good value. The members of the council rightly can be proud of the contribution they are making to national economic and political debate. They are a dedicated group of members who are fulfilling their mandate and are working in the public interest. They have appeared before the Oireachtas Joint Committee on Finance, Public Expenditure and Reform a number of times and I always have been highly impressed by the contributions they have made. The chairperson of the Irish Fiscal Advisory Council, Professor John McHale, should be singled out for mention because he has taken on the onerous task of chairing the body and of pulling together the various strands of its work. Moreover, when its members appear before the aforementioned finance committee, he is the main spokesperson and is very impressive. This is why Members should take it seriously when someone of Professor McHale's stature and competence must almost threaten in public the tool of resignation, as he put it, for notice to be taken of the council. This is why this debate is fundamentally important because while the council will not say so itself, having read between the lines and having listened to Professor McHale on the morning of the budget last week, I believe that a number of the council members are likely to feel frustrated at present.

Its pre-budget statement for 2015 was a valuable piece of work and it makes a number of important points. Much attention has been focused on its recommendation that a €2 billion adjustment be made in 2015. I will return to this point shortly but it is important to put on the record of the Dáil that it also made a number of important observations about the state of the economy and the challenges it faces at the current time. The report provides a sobering reminder that the State's expenditure for 2014 will exceed its revenue by approximately €7 billion and that Ireland will end this year with a debt level five times that which existed when the crisis first took hold in the summer of 2008. As the report states:

...the level of debt is [now] 1.2 times the size of the economy. This highlights the continued vulnerability of the overall fiscal position.

There also is a timely reminder that the Government will face considerable challenges in maintaining expenditure control under current plans due to demographic pressures in the years ahead. Just this evening, I received replies to parliamentary questions which indicated that the Departments of Health, Education and Skills and Social Protection face additional expenditure in 2016 to deal with demographic pressures of €150 million, €88 million and €200 million, respectively. This is before any scheme is expanded or enhanced. The Irish Fiscal Advisory Council has rightly highlighted that these pressures will only intensify in the years ahead. These are huge sums, which should temper any Minister for Finance intent on engaging in massive spending increases or tax cuts in the years ahead. In simple terms, across the three biggest spending Departments, it will be necessary to spend more than €400 million extra per year just to stand still. I believe this point often is lost in the debate.

The central recommendation of the Irish Fiscal Advisory Council report, however, was that the previously-signalled €2 billion adjustment for 2015 should be implemented. This was on top of already-announced austerity measures, including €300 million in domestic water charges and the phasing out of mortgage interest relief and cuts to the one-parent family payment, which will continue to bite in 2015.

In actual fact, what we got on budget day was a €1 billion stimulus to the economy. This included €520 million of tax cuts and €630 million of new spending commitments. The net adjustment was reduced modestly by the inclusion of €100 million of revenue from a change to the basis on which VAT on telecommunication services is paid.

As I stated on budget day, these measures are not being paid for out of general revenue buoyancy, rather they are being paid for with increased borrowing, which will have to be paid back with interest in future years. Essentially, the Government panicked, as it saw the result of the recent by-elections confirm what we had seen in the local elections, namely, that dozens of Fine Gael and Labour backbenchers' seats are at risk in the next general election, and a political calculation was made. The Government's promise of an end to boom and bustpolicies rings truly hollow. An opportunity had existed to get ahead of the game in regard to the goal of achieving medium-term debt sustainability in this budget. The Minister decided not to opt for that avenue.

We also concur with the view expressed in the Fiscal Advisory Council report that: "The 3 per cent ceiling should be regarded as the maximum tolerable deficit level, not a prudent level." The decision to allow the deficit to rise to 2.7% next year from the opening position, as set out in the White Paper on receipts and expenditure, is not something on which the Government should be congratulated. It is allowing the deficit to go dangerously close to the 2.9% limit under the State's medium-term budgetary objective. Lauding itself for having a deficit target of 2.7% is a like a bank customer congratulating himself for not maxing out his credit card. What is interesting is that the Government has not even had the decency to say why it is that it is not just rejecting the advice of the Fiscal Advisory Council but going in the exact opposite direction with a pro-cyclical budget.

The Government should be required to set out a formal response to the Fiscal Advisory Council's report. I note what the Minister said in terms of setting out a response in the next fiscal publication or separately in written form. There is a case for changing the legislation, which would require the Government to set out in writing, within two months of a report, the recommendations which it is not accepting in terms of the correction mechanism and budgetary rule, but not in regard to budgetary advice. The Government should be bound by statute to set out its response in that regard. What we got instead was a dismissive response to the report from the Taoiseach.

I am grateful to RTE's programme "The Late Debate" for being able to listen back to what the Taoiseach actually said. At the UN climate change conference on 23 September he was asked by RTE's Caitriona Perry why the Government persistently refused to take the advice of the Fiscal Advisory Council. His words are quite astounding. He said:

... the fiscal council is a statutory council, its views are clear, they are always valued, but it is a matter for the Government to make its own decisions. It was an important introduction to have an independent fiscal council so that Governments of the future can always be reminded of what the fiscal council actually do.

There we have it. The Taoiseach believes the Fiscal Advisory Council, which was set up following the passage of the fiscal treaty referendum in 2012, is merely there "so that Governments of the future can always be reminded of what the fiscal council actually do". It is regrettable that the Government did not allow the Dáil an opportunity to debate in full the recommendations of the Fiscal Advisory Council prior to the budget. This debate has the feel of an afterthought, a box-ticking exercise on the part of the Government.

If I had been delivering the budget, I would have adopted a more prudent approach than the Minister for Finance did. I disagreed with the Fiscal Advisory Council in its recommendation that a €2 billion adjustment be made in budget 2015, although we fully acknowledge that the points it made are valid and worthy of careful evaluation. It is my belief that, after six years of very difficult austerity measures, the recovery should be allowed to take hold and that additional tax and expenditure cuts of the order of €2 billion would threaten to choke off the recovery. The Minister for Finance threw caution to the wind, however, with a budget document which represented a €3 billion swingfrom the advice it had been given by the Fiscal Advisory Council. This included almost €600 million in unfunded tax cuts. I would have taken a more prudent approach, reducing the €2 billion adjustment but still providing for a modest adjustment in the region of €200 million. We did not commit to any tax cuts at this stage other than a targeted relief measure in respect of mortgage interest relief. We would also have raised an additional amount from new tax measures to fund what we believe are vital spending commitments in terms of public services.

It is worth noting that less than 24 hours after the Minister delivered his budget speech, fresh storm clouds began to gather over the European economy. While a wide range of reasons have been put forward for recent sharp falls in stock and bond markets, the primary concern has been a faltering European recovery. Anticipated growth has not materialised. The position in terms of nominal growth is even worse. France and Italy, in particular, stand out as significant headwinds to a European-wide recovery. Greek bond yields are pushing back into dangerous territory. While bond yields have risen by a more modest 30 basis points in Italy and Spain over the past month, without a resumption of growth, debt levels may once again become a cause of concern and destabilise the markets. It may turn out that the decision to abandon fiscal caution is happening at a time when we are once again entering choppy waters in terms of European debt markets.

I would also like to make some general comments about the work of the Fiscal Advisory Council. It notes in its report that two countries which suffered fiscal crises in the 1990s, Canada and Sweden, responded by putting in place much more robust budgetary institutions and policies. Ireland does not seem to have learned the lesson in this regard. The budget is essentially presented to us as a done deal. There has been no pre-legislative scrutiny, which we have with other legislation that is far less significant. Four Deputies elected to the House essentially dominate the budget process. The major changes to the budget process, which were promised by the Minister, Deputy Howlin, among others, have not happened. Vital information that would inform policy discussion is withheld from the public and Opposition parties. The merit or otherwise of proposals is never scrutinised in detail and virtually no Opposition amendments to the key finance or social welfare Bills are ever accepted. The Fiscal Advisory Council can play a role in redressing this situation. To do so it will have to become the trusted objective voice providing accessible and objective analysis on budgetary issues. It has made major strides in this regard by publishing its pre-budget assessment this year.

The Fiscal Advisory Council should also be given a role in the lead-up to a general election in providing an independent assessment of the manifesto commitments not only of Opposition parties but also of the outgoing Government parties. That is an issue which has been raised for the Office of Budget Responsibility in the UK. It has not been accepted there yet but it does happen in the Netherlands. It would be better to do that. Notwithstanding the independence of our Civil Service, it is not a role best performed by a Department of Finance which, ultimately, is subject to its political masters, which will be the outgoing Government.

The Fiscal Advisory Council should not be afraid not only to provide advice but also to criticise the Government for decisions it has taken. There is an established precedent for this in that the former Ombudsman, Emily O'Reilly, regularly took issue with actions of this and previous Governments. In so doing she helped to inform and shape public debate.

The role of the Fiscal Advisory Council is still evolving. It serves a very important public function. It should not be deterred by the reaction of the Government to its most recent report. Its seventh fiscal assessment report will be published in November. This report will include an assessment of the official macroeconomic and budgetary forecasts and also an assessment of whether the fiscal stance taken is conducive to prudent economic and budgetary management, with reference to the EU Stability and Growth Pact. I expect it will make for interesting reading. I very much hope we will again have an opportunity to debate that and future reports from the council on the floor of this House.

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