Written answers

Thursday, 16 June 2016

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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83. To ask the Minister for Finance the components of the methodology of the medium-term forecasts that were produced using the European Union commonly agreed methodology; how the forecasts are calculated; and if he will make a statement on the matter. [16440/16]

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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84. To ask the Minister for Finance the details of the complementary medium-term baseline estimates and why they are better suited to the Irish economy, given the medium-term forecasts that were produced using the European Union commonly agreed methodology and work already commenced to develop a complementary set of medium-term baseline estimates for the supply-side based on methodologies better suited to the characteristics of the Irish economy; and if he will make a statement on the matter. [16441/16]

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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85. To ask the Minister for Finance the work undertaken or plans to develop a complementary set of medium-term baseline estimates for the supply-side, based on methodologies better suited to the characteristics of the Irish economy regarding the medium-term forecasts which are currently produced using the European Union commonly agreed methodology, which is only required for fiscal surveillance and which his Department has long recognised is not appropriate for Ireland; and if he will make a statement on the matter. [16442/16]

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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86. To ask the Minister for Finance his views on the assertion by the Fiscal Advisory Council that there are risks that signs of overheating may again be missed if he exclusively relies on the commonly agreed methodology; and if he will make a statement on the matter. [16443/16]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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I propose to take Questions Nos. 83 to 86, inclusive, together.

My Department's macroeconomic forecasts, as published in the 2016 Stability Programme (SPU) in April, include a number of elements, principally estimates of demand in the economy, and also of the productive capacity, or supply side. The EU fiscal rules essentially seek to ensure sensible and sustainable budgetary policies, taking into account the impact of the economic cycle. For the purpose of assessing compliance with the fiscal rules, a Commonly Agreed Methodology (CAM) has been developed, which in essence seeks to assess the cyclical position of the economy, and on that basis, the appropriate fiscal policy stance for Member States, including Ireland. My Department's forecasts are prepared in a way which is consistent with the CAM, as required in the context of the European Semester.

As noted in the 2016 SPU, the CAM is subject to limitations particularly when applied to Ireland. Efforts continue at European level to improve the applicability of the CAM. As I have outlined in a recent parliamentary question reply (Ref 15737/16), my Department is in the process of developing alternative models for estimating potential output. Considerable work has been done on this front and is now nearing completion. An outline of this work is set out in Box 1, page 24, of the 2016 SPU, published in April. The intention is to publish the technical work in the short-term. However, I would stress that for the purposes of assessing the cyclical position of the economy in the context of the fiscal rules, the CAM is still the relevant metric.

I would also emphasise that both myself and my Department remain vigilant to signs of overheating. Consideration is given to a wide range of indicators, which include, but are not limited to, estimates of the cyclical position of the economy. My Department has not currently detected signs of overheating over the forecast horizon. Moreover, there are indications of spare capacity in the economy, particularly in the context of the labour market. Having said that, it is clear that with continued strong growth in the economy, the amount of spare capacity is declining and we must be conscious of this.

The Government, for its part, will not pursue budgetary policies to overheat the economy. Our emphasis is on continuing to implement sensible policies, including budgetary policies, aimed at ensuring sustainable growth and public finances.

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