Tuesday, 24 June 2014
Department of Finance
145. To ask the Minister for Finance the reason he has decided to achieve the medium-term budgetary objective of a balanced budget in structural terms by 2018, which is sooner than the requirements under the European fiscal rules; and if he will make a statement on the matter. [26846/14]
The corrective arm of the Stability and Growth Pact (SGP) requires that we bring the headline deficit below 3 per cent of GDP by 2015. This remains the immediate priority. Once the excessive deficit is corrected, Ireland will be subject to the requirements of the preventive arm of the SGP. The rules specify the need to make progress towards the medium term objective (MTO) of a balanced budget after taking into account the impact of the economic cycle (i.e. in structural terms). In particular, the preventive arm sets out the requirement for an annual correction in the level of the structural balance (an improvement of 0.5 per cent per annum as a benchmark), without specifying when this position should be achieved.
In contrast, the Treaty on Stability, Coordination and Governance in the EMU (somethimes referred to as the 'fiscal compact') tasked the European Commission with producing an actual timetable for participating Member States to achieve their MTOs. Last summer, the Commission outlined that Ireland should achieve its MTO by 2018. On this basis, the April 2014 Stability Programme Update set out a path for achieving a balanced budget by 2018. Until the 2014 Country Specific Recommendations (CSRs) are formally adopted by the European Council (early July), Ireland remains subject to the requirement of meeting the 2018 deadline.
Following discussions on the necessary consistency between the fiscal compact and the SGP, and ahead of the formal adoption of the 2014 CSRs, the European Commission has clarified that the deadline for MTO achievement is not fixed but the required annual improvement in the structural balance is. Consistent with SGP rules, Member States not at their MTOs must improve their structural balance by at least 0.5 per cent of GDP per annum.
So, in summary, last year the requirements of the fiscal compact set out a deadline for MTO achievement, whereas from this year onwards, the focus will be on the required fiscal effort. Therefore, once the 2014 CSRs are formally adopted, we will no longer need to reach a balanced budget by 2018; instead, we will have to deliver the required annual improvement in the structural balance.