Dara Calleary (Mayo, Fianna Fail)
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28. To ask the Minister for Finance the implications of a transaction the State entered into in 2015 in respect of its holding in Allied Irish Banks on the application of the expenditure rule in 2016 and beyond; and if he will make a statement on the matter. [13027/16]

Michael Noonan (Limerick City, Fine Gael)
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When reporting the Excessive Deficit Returns for 2015 in April, the CSO highlighted that Eurostat had made a determination during the clarification process that the conversion of the AIB preference shares to ordinary shares was to be treated as a capital transfer (expenditure) rather than a reinvestment of capital.  This increased the general government expenditure for 2015 on a one-off basis by circa €2.1 billion and worsened the general government deficit for 2015 by about 1% of GDP.  Excluding this one-off transaction, the deficit on an underlying basis was 1.3% of GDP.

Compliance with the expenditure benchmark is calculated by comparing the year-on-year change in general government expenditure, excluding certain items such as interest expenditure, and there is no provision for the exclusion of one-off transactions. As a result, the general government expenditure outturn for 2015 does mean that there is a significant buffer now built into the calculation of Ireland's compliance with the expenditure benchmark in 2016.

However, as the Deputy is aware, the expenditure benchmark is only one of the two pillars used to assess compliance with the preventive arm of the Stability and Growth Pact.  The second pillar is the balanced budget rule, which requires a Member State to move towards its medium-term budgetary objective or MTO in accordance with its adjustment path.  The MTO is set in structural terms, which means it excludes the effects of the economic cycle and one-off transactions, such as the AIB transaction in 2015.

In assessing compliance with the preventive arm of the SGP, the European Commission undertakes an overall assessment based on both pillars.  Given the one-off issue, it is possible that the Commission will place greater emphasis on the structural balance pillar for 2016 and not the expenditure benchmark as would normally be the case.  With regard to 2017 and beyond, the AIB transaction will have no effect as compliance with the expenditure benchmark will be measured by reference to the level of expenditure in 2016.