Stephen Donnelly (Wicklow, Independent)
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Question 198: To ask the Minister for Finance the expected year in which Ireland will first have to meet with the structural deficit target of 0.5% of GDP, as set out in the Fiscal Compact; and if he will make a statement on the matter. [21778/12]

Stephen Donnelly (Wicklow, Independent)
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Question 199: To ask the Minister for Finance the estimated budget impact, that is, the difference positive or negative in budget deficit or surplus which will be required, in order to comply with the structural deficit rule, in the first one to five years of compliance, against a base case of not having to comply with it; and if he will make a statement on the matter. [21779/12]

Michael Noonan (Limerick City, Fine Gael)
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I propose to take Questions Nos. 198 and 199 together.

The forecasts set out in the 2012 Stability Programme Update are consistent with a General Government Balance of just under –3% of GDP in 2015. As discussed in the document, the exact size of the structural component of this is, of course, uncertain. Not only do technical estimates differ depending on the approach used, but it is also the case that estimates of the structural balance further out the forecast horizon are not fixed - policies being implemented at present, together with future measures, can be expected to impact positively on the figures.

As I have said on a number of occasions, reducing the structural element of the deficit will require policy action, though not necessarily taxation and expenditure adjustments. Other options are available and it is the Government's intention to pursue these. Such measures include labour market reforms, together with investment in technology and infrastructure. By boosting the productive capacity of the economy, the ambitious programme of microeconomic reforms that is already underway is expected to help reduce the structural element of the deficit by the middle part of the decade. For example, the Action Plan for Jobs 2012 and the Pathways to Work initiative include reforms aimed at addressing some of the skills mis-match in the labour market, which should help lower the unemployment rate. This would have a structurally beneficial impact on the public finances, on both the revenue and expenditure sides. In other words, the structural fiscal position is set to improve with these microeconomic reforms.

Under the Stability and Growth Pact, when a country is in excessive deficit (i.e. has a General Government Balance in excess of –3% of GDP), the focus of the fiscal effort is on reducing the headline deficit to below 3% of GDP. In our case, the time path to achieve this objective is end-2015. Once a country comes out of excessive deficit, the focus is on bringing a country's public finances into line with its agreed medium-term budgetary objective.

As discussed in the 2012 Stability Programme Update, Ireland's medium-term budgetary objective (MTO) currently stands at -0.5% of GDP. This objective was set under the Stability and Growth Pact and well in advance of the Stability Treaty. Furthermore, as noted above, estimates of the structural deficit vary in an Irish context. What we can say is that we are making progress towards the achievement of our MTO, and further progress will be made in the post-2015 period on a phased basis, in accordance with a timeline to be agreed.