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

The Irish Fiscal Advisory Council was established in 2011 as part of a wider agenda of reform of Ireland's budgetary architecture as envisaged in the programme for Government.  Subsequently, following approval of the fiscal compact treaty by referendum in 2012, the Irish Fiscal Advisory Council was placed on a statutory basis to fulfil the role of monitoring compliance with the fiscal rules under the Stability and Growth Pact and, following further EU reforms, subsequently given the endorsement role for the macroeconomic forecasts which underpin the budget. 

In its recent fiscal assessment report, the council has again asserted its independence and produced some interesting pieces of analysis. While it is the case that I do not always agree with the outcome of the council's analysis, I very much value its expertise and its input as an independent voice in helping the Government to adhere to its own fiscal targets.

With regard to advice contained in the fiscal assessment report, as I have stated in the House previously, this is being considered by my officials.  As is normal, a comprehensive response to all of the pertinent issues will be published in the coming weeks. I will, however, give my initial views on a significant issue raised by the council.

As the Deputy will be aware, from 2016 onwards, the public finances in Ireland will be subject to the requirements of the preventive arm of the SGP.The European Commission assesses compliance with the preventive arm on the basis of two complementary pillars. The first is the minimum annual improvement in the structural balance and the second is compliance with the expenditure benchmark. The minimum improvement in the structural balance and the expenditure benchmark are in theory designed to be complementary, although differences between the two metrics can emerge from time to time.

The Fiscal Advisory Council noted that the fiscal projections contained in the stability programme update, SPU, did not show Ireland complying with our requirements under the Stability and Growth Pact - in other words, the improvement in our structural balance is below the required 0.6 percentage points in 2016.

However, SPU estimates show that for Ireland compliance with the expenditure benchmark is consistent with delivering a lower suggested quantum of structural adjustment in 2016. This somewhat counterintuitive outcome was explicitly addressed in the SPU, and emphasises the material problems posed by some of the technical aspects of the rules.

Additional information not given on the floor of the House

It should be noted that compliance with the requirements of the Stability and Growth Pact is ultimately assessed on the basis of analysis undertaken by the European Commission. In this context, the recent assessment of the SPU published by the European Commission as part of the European semester process finds that "on the basis of information in the 2015 Stability Programme Update recalculated according to the common methodology, progress towards the MTO is in line with the requirements of the preventive arm of the [Stability and Growth] Pact." The assessment by the Commission also finds that "the rate of expenditure growth net of discretionary revenue measures, as planned in the SPU, is expected to be in line with the requirements of the expenditure benchmark pillar". In summary, therefore, the projections in the SPU are consistent with the requirements of the Stability and Growth Pact.

While I will address other issues comprehensively in my formal response to the Council, I would strongly make the point that when formulating budget 2016, the Government is acutely aware of the importance of adhering to the fiscal rules and our fiscal policy will reflect this.

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