Brendan Howlin (Wexford, Labour) | Oireachtas source

The major progress achieved in securing fiscal stability means that from the beginning of next year Ireland will exit the corrective arm of the Stability and Growth Pact and become subject, as the Deputy knows, to its preventive arm. The core of this fiscal rule is the medium-term objective to achieve a balanced budget in structural terms, whereby allowances are made for once-off temporary factors and the impact of the economic cycle on the public finances. Compliance with the medium-term objective will require improvement in the structural budget at a rate greater than 0.5% of GDP each year until the medium-term objective is achieved. 

As the Deputy is very well aware, the second pillar of the fiscal rules relates to the expenditure benchmark which supports the achievement of the medium-term objective by explicitly setting the rate, aligned to the estimated potential growth rate of the economy, at which aggregate public expenditure can grow, other than when the relevant expenditure is funded through discretionary revenue measures.

From next year onwards, increases in overall general Government expenditure must be based on the requirements of these pillars of the preventive arm of the Stability and Growth Pact. This is the law. The ministerial expenditure ceilings for next year have been set in a context that will deliver on this objective. From 2016, this means that additional resources in excess of these ceilings may only be allocated in a manner that is consistent with the pact. Consequently, unplanned expenditure leading to Supplementary Estimates from 2016 may not be met by additional revenue arising from the economic cycle but rather would need to be met through expenditure savings, efficiencies elsewhere or additional taxes. 

The current estimates of the gross and net fiscal space for the period to 2021 were set out in the budgetary tables on budget day. These estimates are not final but comprise forecasts based on the number of projections, including GDP deflators, benchmark reference rates and convergence margins forecast by the Department of Finance for each of the years beyond 2016. The actual deflator, reference rate and convergence margin values used by the Commission to assess compliance with the rules each year beyond next year will be based on its estimates as set out in the forecast in each relevant year.

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