John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Question 35: To ask the Minister for Finance if he will set out his rationale for not accepting the recommendation of the Fiscal Advisory Council on the budgetary adjustment for 2012; and if he will make a statement on the matter. [34413/11]

Michael Noonan (Limerick City, Fine Gael)
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The Irish fiscal advisory council in its first fiscal assessment report published in October stated that it sees a strong argument for strengthening the budgetary consolidation effort and targeting a general government deficit of 1% of GDP by 2015, as compared to the target of having a deficit below 3% by that year. In that regard, the council recommended the implementation of a €4.4 billion budgetary adjustment package in 2012.

Under the terms of the EU-IMF programme, the general government deficit must not exceed 8.6% of GDP. The recently published medium term fiscal statement estimates that, based on the current macroeconomic and fiscal assessment, an adjustment of €3.8 billion is required in order to achieve that target, one to which the Government is absolutely committed. While cognisant of the views of the council, the Government is of the view that adhering to its commitment to reduce the deficit to below 3% of GDP by 2015 and delivering on the EU-IMF programme commitments is what is needed.

In striving to restore sustainability to the public finances, we must also be mindful of protecting the emerging economic recovery and seek to strike the right balance between the two. This balancing act is difficult but we believe we have struck the right balance as do the EU-IMF troika.

Michael McGrath (Cork South Central, Fianna Fail)
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I thank the Minister. The reason this question was asked is that it is important we put on record the Government's response to the fiscal advisory council's report. The Government was required to establish the fiscal advisory council under the EU-IMF programme. It has not yet been put on a statutory basis but its work is well under way. I happen to agree with the Minister and with the Government's position that it would be wrong to go for an adjustment of €4.4 billion, which was recommended by the fiscal advisory council. That would have a very negative impact on the domestic economy at a time when we need confidence and certainty in it and on issues which are within the Government's control, such as upward only rent reviews, the partial loan guarantee scheme and the cost of labour, including the promised reforms of the JLCs and the REAs. That is where the focus must be. It is important we put on record the response by Government because we have not had a debate on that report. When does the Minister hope to have the council put on a statutory basis?

Michael Noonan (Limerick City, Fine Gael)
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It is always a question of judgment. There is a lot of advice saying we should front-load the adjustment and there are people who say we are going too fast already. The debate is about whether we reduce demand in the domestic economy unduly so that any hope of growth goes out the window. It is a moot point.

I thought the report by the fiscal advisory council was very good and I thank the chairman and the members of the council who work on a pro bono basis to provide the Government with independent advice. I thought the advice on this occasion was striking.

I spoke previously on whether an adjustment of 1% by 2015 rather than an adjustment of just under 3% by 2015 is appropriate. The way I see it is that the correction will not finish in 2015 and whoever is in government after that date will have the problem of continuing it. Taking on board the advice of the fiscal advisory council, it may be appropriate to set a new target which would get us down to 1% a couple of years after 2015 but it is always a balance between taking demand out of the economy and inhibiting recovery or front-loading the pain so that we get a better run later on. It is a matter of judgment.

Michael McGrath (Cork South Central, Fianna Fail)
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When will we see the Bill and when will the fiscal advisory council be placed on a statutory footing?

Michael Noonan (Limerick City, Fine Gael)
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We have made a commitment to do so but it will not be in this term.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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It is bad enough that we have effectively seen a political coup d'état by the markets and the troika in Italy and Greece in recent weeks and all the suffering resulting from these so-called fiscal adjustments but is there any recognition on the Minister's part, as projected growth rates for Europe are being downgraded on a daily basis, that the austerity might not be working? Does the Minister agree that our ability to deal with deficit problems or even meet the terms of the troika agreement are dependent on economic growth when it is obvious that economic growth is being crippled in the eurozone? Is there any recognition on the Minister's part or that of the troika that no matter what they do it is resulting in the contraction of the European economy which will throw all plans for this economy and that of Europe off course?

Michael Kitt (Galway East, Fianna Fail)
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The question was on the fiscal advisory council.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I am asking about fiscal adjustment.

Pearse Doherty (Donegal South West, Sinn Fein)
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In regard to the proposals from the fiscal advisory council on the scale of the adjustment, I agree that a reduction to 1% by 2015 is not a path that should be followed. However, this time last year the previous Government suggested an adjustment which has grown over 12 months by €2.6 billion. It went from €9.8 billion to €11.8 billion to €12.4 billion. It has grown by €2.6 billion due to a number of factors, including growth rates, interest rates and so on. If we were to see a further increase in the value of the adjustments to be made, is there a point at which the Minister believes we could not get to the 3% by 2015? In the past 12 months, we have absorbed an additional adjustment of €2.6 billion. Is there a point at which we say that this is all that can be taken out of the economy? Some €12.4 billion or €12.5 billion is not just what we are taking out. That is an annual amount. Has the Minister examined that?

Michael Noonan (Limerick City, Fine Gael)
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Harold Wilson said a week is a long time in politics. Six months is a very long time in the life of the European economy. One must recall that 12 months ago, we were not in the programme. Look at all that has happened since then. The Government has been in office for approximately seven months and look at all that has happened since then. To project to 2015 and to ask me to give a view on what would happen is not reasonable. We can speculate but it is of no practical impact.

On Deputy Boyd Barrett's question on whether we take cognisance of declining growth in the European economy, of course we do. We have readjusted our growth figures down from €2.5 billion to €1.6 billion for 2012.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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To what does the Minister ascribe the contraction?

Michael Noonan (Limerick City, Fine Gael)
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To translate that into very simple terms, in the Irish economy, every 1% reduction in growth rates is 0.5% of GDP. Some 0.5% of GDP up or down generates or takes out approximately €800 million in tax receipts. That is the level of adjustment we made in preparation for this budget. If we had not done the mark down, we would have approximately €700 million extra available to us. We are taking it into account but it is a fallacy to say that the reduction in growth rates in Europe is due to lack of demand or austerity programmes in Portugal, Greece and Ireland because together we represent approximately 6% of the whole outfit. If one looks at the situation in Germany, it had growth rates of approximately 4% but it is back to slightly over 0%. That has nothing to do with any austerity programmes in Germany because there are none.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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What about Spain and Britain?