Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

The EU fiscal rules have been designed to promote budgetary discipline and underpin sustainable economic growth. While the economy is growing and debt is on a downward trajectory, the debt level is still high and we have to be careful owing to the potential of roll-over risk should interest rates increase. This is a small and very open economy in a world which now has more risk than is usual. Therefore, meeting the fiscal rules underpins our objective of being careful with the national finances.

The issue of facilitating greater flexibility within the application of the fiscal rules has received a significant focus at European level and framed discussions on the establishment of structural and investment clauses which were codified by the European Commission in November 2015. Specifically, the provisions allow for temporary deviations from the required structural budgetary adjustment, subject to strict conditions. Furthermore, as the Deputy is aware, there is existing flexibility within the expenditure benchmark whereby capital increases are smoothed over four years, with the result that only one quarter of the increase in public investment must be funded from the first year within the fiscal space. This provision which means increases in capital spending for housing and other purposes can be front-loaded within EU rules and has been availed of in our plan.

The Deputy should also be aware that any decision to increase capital expenditure over and above already planned levels would need to balance the danger of potential overheating in the economy with the need to address infrastructural priorities and risks such as Brexit. As the Deputy will know and as demonstrated by our recent experience in the early years of the last decade, pro-cyclical budgetary policy can jeopardise future living standards.

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