Seán Sherlock (Cork East, Labour)
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321. To ask the Minister for Finance the scope that exists within the fiscal rules for additional expenditure in 2016; and if he will make a statement on the matter. [26052/16]

Seán Sherlock (Cork East, Labour)
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322. To ask the Minister for Finance the implications for Ireland’s MTO target and adherence to the expenditure benchmark of the EUROSTAT reclassification of the 2015 AIB share conversion; and if he will make a statement on the matter. [26053/16]

Michael Noonan (Limerick City, Fine Gael)
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I propose to take Questions Nos. 321 and 322 together.

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 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. 

The buffer under the expenditure rule allowed for the additional €540m expenditure detailed in the 2016 Revised Estimate Volume for known spending pressures in the areas of Health and Justice. Based on the assessment at the time and reflected in the fiscal forecast in the Summer Economic Statement, this was largely compatible with our obligations under the balanced budget rule; however, it was estimated to be very much at the limit.

Assessment of compliance with the preventive arm of the Stability and Growth Pact by the European Commission is based on overall assessment, taking account of both the expenditure benchmark and the balanced budget rule. As part of the Budget 2017 process, there will be a detailed re-assessment of these measures; however, our judgement at this time is that there is no scope for further additional voted expenditure above the aggregate level already approved.  However, this does not preclude additional expenditure on specific items provided it is matched by savings within the existing level of authorised aggregate expenditure allocations.