Michael McGrath (Cork South Central, Fianna Fail)
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101. To ask the Minister for Finance the manner in which the expenditure rules under the fiscal treaty will impact on Ireland's budgetary decisions for 2016 and future years; the concessions in respect of these rules that have been provided to other countries; the leeway which is being sought by Ireland; and if he will make a statement on the matter. [12651/15]

Michael Noonan (Limerick City, Fine Gael)
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The expenditure rule referred to by the Deputy was introduced into the Stability & Growth Pact by the six-pack reforms adopted in 2011. The 'expenditure benchmark' as it is generally known was also referenced in the Fiscal Compact.

Budget 2016 will be the first budget that Ireland will produce whilst subject to the revised preventive arm of the Stability & Growth Pact.  The rule under the preventive arm requires Ireland to be on an appropriate adjustment path to the Medium Term Budgetary Obligation (MTO) and compliance with this rule is assessed in two ways. The first assessment requires a minimum improvement in the structural balance of more than 0.5% of GDP per annum until a Member State reaches its (MTO), which in Ireland's case is a balanced budget in structural terms.  Importantly, in an Irish context, this is dependent on the estimation of the output gap, something which has proven volatile for small economies, particularly with open labour markets.

The second assessment is the expenditure benchmark which links growth in expenditure to the potential growth rate of the economy.  Additional expenditure above the benchmark has to be paid for through the introduction of new discretionary revenue measures.  The benchmark also contains a feature than is designed to assist with achieving the minimum structural improvement.

Exchanges between my officials and the Commission has led to the proposal of more sensible population projections which will support estimates of potential output over the medium-term. This change is expected to assist with compliance with both of the above rules. Following the usual course of action for amending aspects of the harmonised methodology for estimating potential output, the relevant committee - the Output Gap Working Group - is considering a solution to the issue of population projections and the estimation of the level of structural unemployment to address concerns faced by Ireland and a number of other Member States.

At the moment, the reference rate used in the calculation of the expenditure benchmark is based on a ten year average of potential growth which was calculated in 2013 when both the outturn and outlook for our economy's growth potential was considerably weaker.  What I raised at the recent Eurogroup meeting was the use of outdated estimates of potential growth in the calculation of this metric which could lead to sub-optimal fiscal decisions being made. 

My officials are in ongoing technical discussions with the European Commission and other Member States to both improve estimates of potential output and to establish a more appropriate calculation of the reference rate.  This work will take place through the appropriate working groups and official channels and as I do not want to prejudice these discussions, I will not be elaborating any further details at this time.

As far as I am aware, no Member States have been provided concessions in the application of the preventive arm of the SGP. 

Finally, I would emphasise that I support the revised fiscal rules.  What I will be seeking from the Commission and colleagues from other Member States is a more sensible application of the rules which will enhance the credibility of fiscal policy decision making.