Michael McGrath (Cork South Central, Fianna Fail)
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86. To ask the Minister for Finance his views on the finding of the Irish Fiscal Advisory Council that the Stability Programme Update 2015 sets out a plan that lowers the budget deficit by just 0.3% of gross domestic product in 2016, thus falling short of requirements on a forward-looking basis; and if he will make a statement on the matter. [22921/15]

Michael Noonan (Limerick City, Fine Gael)
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I have noted the views of the Irish Fiscal Advisory Council (IFAC) as published in the Fiscal Assessment Report last week.

We are on track to correct the excessive deficit in line with the requirements of the corrective arm of the Stability and Growth Pact (SGP) this year. Indeed, I note that the ESRI in its Summer Quarterly Economic Commentary published yesterday confirms it too expects a 2015 headline deficit of 2.3 per cent, well inside the 3 per cent of GDP ceiling.

From 2016 onwards, the public finances in Ireland will therefore be subject to the requirements of the preventive arm of the SGP. The European Commission assesses compliance with the requirements of the preventive arm on the basis of two complimentary pillars. First is the minimum annual improvement in the structural balance and the second is compliance with the expenditure benchmark. The minimum improvement in the structural balance and the expenditure benchmark are in theory designed to be complementary, although differences between the two metrics can emerge from time-to-time.

The IFAC noted that the fiscal projections contained in the Stability Programme Update (SPU) did not show Ireland complying with our requirements under the SGP; in other words, that the improvement in our structural balance is below the required 0.6 per cent of GDP in 2016.

However, SPU estimates show that for Ireland compliance with the expenditure benchmark pillar is consistent with delivering a lower suggested quantum of structural adjustment in 2016.  This somewhat counterintuitive outcome was explicitly addressed in the SPU, and emphasises the problems posed by some of the technical aspects of the rules.

Finally, it should be noted that compliance with the requirements of the SGP is ultimately assessed on the basis of analysis undertaken by the European Commission. In this context, the recent of the SPU published by the European Commission as part of the European Semester process finds that 'on the basis of information in the 2015 Stability Programme Update re-calculated according to the common methodology, progress towards the MTO is in line with the requirements of the preventive arm of the [Stability and Growth] Pact'. The assessment by the Commission also finds that 'the rate of expenditure growth net of discretionary revenue measures, as planned in the SPU, is expected to be in line with the requirements of the expenditure benchmark pillar'.

In summary, therefore, the projections in the SPU are consistent with the requirements of the SGP.

Michael McGrath (Cork South Central, Fianna Fail)
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87. To ask the Minister for Finance if projections for the deficit for 2017 and subsequent years in the Spring Economic Statement and the Stability Programme Update 2015 are based on anticipated neutral budgets post-2016, or if they incorporate promised tax and expenditure measures of up to €1.5 billion per annum; and if he will make a statement on the matter. [22922/15]

Michael McGrath (Cork South Central, Fianna Fail)
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90. To ask the Minister for Finance the projected deficit in 2016, 2017 and 2018 on a no-policy-change basis and, separately, based on policies envisaged by the Government; and if he will make a statement on the matter. [22926/15]

Michael Noonan (Limerick City, Fine Gael)
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I propose to take Questions Nos. 87 and 90 together.

As stated in the Stability Programme Update (SPU) and the Spring Economic Statement (SES), the 2016 forecast reflects a budgetary package of €1.2 billion, evenly split between revenue and expenditure measures.  If this €1.2 billion package was not implemented, this would improve the general government deficit ratio, on a straight line basis, by about 0.6% of GDP, from 1.7% of GDP to 1.1% of GDP. The impact of this on outer years is broadly the same. It should be noted that this does not take estimates of second round economic effects into account.  All things being equal, the projected straight line improvement in the deficit of 0.6% of GDP would be reduced somewhat.

The post-2016 forecasts in the SPU and SES reflect a no-policy change scenario other than an increase in expenditure of €300m per annum for demographic pressures and indexation of the income tax system at an estimated cost of €300m in a full year. 

As outlined in the SES, initial estimates produced by my Department at that time suggest that there would be sufficient fiscal space to implement a budget along the lines planned for 2016 in each year from 2017 onwards, whilst complying with the rules and still achieve our MTO over the forecast horizon.

However, while Government has stated elsewhere its intention to reduce the marginal rate of tax and new expenditure priorities, the production of fiscal forecasts reflecting policy beyond 2016 requires specific decisions on the allocation of fiscal space for each year.  Options include whether it should go wholly to expenditure (current/capital) or tax cuts or a combination of these and the iterative nature of forecasting over a four year period means that the range of potential fiscal projections is significant.

When Government has fully considered the appropriate use of the available fiscal space, it will set out its proposals.

Michael McGrath (Cork South Central, Fianna Fail)
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88. To ask the Minister for Finance his views on the finding of the Irish Fiscal Advisory Council that the Spring Economic Statement and the Stability Programme Update 2015 incorporate a further adjustment for tax buoyancy that goes against the letter and spirit of the expenditure benchmark rule; and if he will make a statement on the matter. [22923/15]

Michael Noonan (Limerick City, Fine Gael)
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The Irish Fiscal Advisory Council's report does state that the inclusion of tax buoyancy appears to go against the letter and spirit of the expenditure benchmark and it goes on to state that it sees no argument for the inclusion of a temporary demand effect in the calculation of expenditure benchmark compliance given the objective to match structural changes in spending and revenues.

I do not agree with the Council's conclusions.  The European Commission has stated repeatedly that the idea behind the expenditure benchmark is to ensure that any plans for increases in expenditure are properly financed, without leading to a weakening of the underlying fiscal position.  This is, for us, the letter and spirit of the expenditure benchmark and we are of the opinion that excluding tax buoyancy would go against that spirit and be inconsistent with the overall operation of the Stability and Growth Pact.  For instance, the Budgetary Frameworks Directive requires Member States to ensure that fiscal planning is based on realistic macroeconomic and budgetary forecasts.  It is, therefore, appropriate that we take the second round effects of budgetary measures into account when we forecast tax revenues because these are real effects with real impacts on revenue.  In cases such as that set out in the Spring Economic Statement and the Stability Programme Update, where proposed budgetary measures will reduce the burden on taxpayers, the second round effects will lead to real and structural increases in tax revenue that partially reduce the costs of the proposed measures. 

I am therefore of the view that the inclusion of additional revenue buoyancy as a result of policy measures should be included in the calculation of the expenditure benchmark.

Michael McGrath (Cork South Central, Fianna Fail)
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89. To ask the Minister for Finance his views on the Irish Fiscal Advisory Council's claim that the Stability Programme Update 2015 does not present a full picture of the likely costs of demographic ageing and cost pressures in delivering existing programmes; and if he will make a statement on the matter. [22924/15]

Michael Noonan (Limerick City, Fine Gael)
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As stated in the Stability Programme Update (SPU) and the Spring Economic Statement (SES), the 2016 forecast reflects a budgetary package of €1.2 billion, evenly split between revenue and expenditure measures.  Such a package amounts to around 0.6 per cent of GDP.  

Post 2016, the fiscal forecasts included in the SES and the SPU, and all related general government expenditure ratios, reflect a no-policy-change scenario.  However, this no-policy-change scenario does provide for a €300 million increase in gross voted expenditure per annum to offset the demographic pressures.  Funds will also be available to reallocate within expenditure arising from efficiency savings on policy measures and certain live register savings.  The no-policy change scenario also provides for indexation of the income tax system at an estimated cost of €300 million.

This no-policy change scenario results in the pace of structural adjustment in the period 2017 to 2020 significantly exceeding the minimum requirement under the preventive arm of the Stability and Growth Pact (SGP).