Pearse Doherty (Donegal, Sinn Fein)
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10. To ask the Minister for Finance his plans to review the fiscal space for the coming years in view of currency exchange rate changes and the economic impact of Brexit. [34032/16]

Pearse Doherty (Donegal, Sinn Fein)
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My question is about the Minister's plans to review the fiscal space for the coming years in view of the currency exchange rate that was used in the budget documents and also given the economic impact of Brexit. We have seen in the tables on budget day that there was €1 billion of cumulative fiscal space wiped off between 2017 and 2021. We also hear that quite a large portion of the net fiscal space for next year, €1.2 billion, has already been used up, leaving only €530 million net of fiscal space available. Perhaps the Minister could indicate when this is subject to a further review.

Michael Noonan (Limerick City, Fine Gael)
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As the Deputy will be aware, fiscal space estimates are calculated using a set of complex and continually evolving macroeconomic and fiscal projections. These estimates are reviewed and published bi-annually in the Summer Economic Statement in the second quarter and the Budget in October of each year.

Budget 2017, which I presented last month, included, along with the 2017 Budget figures, indicative estimates for the fiscal space for the years 2018 to 2021. These are consistent with the fiscal and economic outlook published with the Budget, which incorporated the impact of near-term uncertainty arising from the UK decision.   This outlook noted that risks are firmly tilted to the downside. Prominent among the risks outlined were a further depreciation of sterling beyond what was considered, and the possibility of a "hard" Brexit.  

At this stage it remains unclear what arrangements will be agreed between the EU and the UK regarding its departure. As you will be aware, a joint ESRI-Department of Finance paper published on Monday sets out the potential macroeconomic and fiscal impacts of the UK's departure under three scenarios and finds that the impact on Ireland's macro-fiscal headline aggregates will be undoubtedly negative over the medium to long-term. By extension, to the extent that growth is weaker than the central Budget scenario, this is likely to have a negative impact on available fiscal space from the time of the UK's departure which now looks likely to be 2019 at the earliest.

Once the timing and exact nature of the UK's departure  arrangements and their likely impacts on the Irish economy and public finances become clearer, the detailed components necessary to update these calculations will also be clearer. However, this will not be for some time yet.  I do not view it as either reasonable or prudent to provide amended estimates of the fiscal space on the basis of each new publication. It is therefore my intention to continue to update the fiscal space estimates twice a year with the summer economic statement and the Budget. 

Pearse Doherty (Donegal, Sinn Fein)
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The figures we were working on were predicated on a net fiscal space of €1.2 billion next year. We now know that €172 million of that has already been used up as a result of the tax carryover and €0.5 billion has been used up as a result of the expenditure carryover. This leaves a net fiscal space for next years' budget of €530 million, before there is any downward revision with regard to net fiscal space. We already see - it has been referred to by me and Deputy Michael McGrath on a number of occasions - that the starting exchange rate used in the calculations was 81 cent to one pound sterling in 2016 and 85 cent for the years 2017-21. The exchange rate today is at 88 cent. It is likely to stay at late 80 cent to 90 cent right through. It seems that this is now a structural change rather than a cyclical fluctuation by the British. There appears to be downward pressures. If Ireland has a fiscal space of only €530 million available next year, and that figure could be revised downwards, then the State is in for a serious shock. We have public sector unions threatening to go on strike for fair wages, we have-----

Seán Ó Fearghaíl (Kildare South, Ceann Comhairle)
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Time Deputy.

Pearse Doherty (Donegal, Sinn Fein)
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-----crises in our hospitals and in our housing sector with the homeless situation. We have a serious, serious problem if these rules are not dismantled, as Sinn Féin had called for in the first instance.

Seán Ó Fearghaíl (Kildare South, Ceann Comhairle)
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The Deputy needs to have regard to the time allowed.

Pearse Doherty (Donegal, Sinn Fein)
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The rules are working against the State now.

Michael Noonan (Limerick City, Fine Gael)
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The calculation of fiscal space is complex and there are many moving parts. Sometimes they move positively and sometimes they move negatively. We have put in place a reasoned calculation of fiscal space which was published at the time of the summer economic statement and revision was published again at budget time. We will continue with the practice. It is not possible to have a recalculation of the fiscal space because the British have had a referendum. It is not possible to recalculate fiscal space because Mr. Trump has been elected President. It is not possible to have a recalculation of fiscal space every time the exchange rate with sterling varies up or down. Deputy Doherty is right in his assumption that the risk is currently downwards, but it is not possible for anybody at the present time to do the calculation by means of simple arithmetic because there are too many moving parts. Sinn Féin has the solution in its own draft budget for increasing the fiscal space, which is to increase taxes.

Pearse Doherty (Donegal, Sinn Fein)
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Yes and there is only so much we can do in that regard. Nobody is suggesting that we review the fiscal space every time there is an international election or changing economy or whatever. I want the Government to confirm that the net fiscal space, as it currently stands for next year, is €530 million as opposed to what we had believed was there, which was €1.2 billion. This is so we know on basis we can start from. We then need to see if that will be revised downwards or upwards. That sets the context with regard to everything else. It sets the context with regard to the pressures our society is facing; the wage claims from public sector unions, how we deal with health, how we deal with the Finance Bills and the issues that have been raised earlier by Deputy Wallace and other Members. We need to know what we are looking at in to the future. One month ago the view was that there was €1.2 billion of fiscal space which could accommodate quite a bit of growth. Ireland's economy is growing-----

Seán Ó Fearghaíl (Kildare South, Ceann Comhairle)
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I thank the Deputy.

Pearse Doherty (Donegal, Sinn Fein)
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-----although we cannot rely on the official figures. The economy is growing at a rate of 3.5% to 4% but we could be very close to an austerity budget next year if the wind is working against us and if fiscal space is revised downwards. The rules are broken. They never made any sense in the first place but now they need to be shattered because they could cause serious damage to the State a time when it is very vulnerable.

Michael Noonan (Limerick City, Fine Gael)
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I have nothing to add to what I said already. It is not possible to recalculate fiscal space on a weekly basis on the back of the most recent international events. As I have said, it looks as if the risks are on the down side towards a reduction of fiscal space available but things can change very rapidly. When we are recalculating in the springtime we will see where we are at. That is time enough to make that calculation.