Seán Sherlock (Cork East, Labour)
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75. To ask the Minister for Finance if he will account for the extra fiscal space that was allocated for budget 2017; and if he will make a statement on the matter. [31331/16]

Michael Noonan (Limerick City, Fine Gael)
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The Department of Finance produces the macroeconomic and fiscal forecasts underpinning Ireland's Stability Programme Update and the annual Budget process. Forecasts of fiscal variables including available fiscal space are routinely updated in these publications. I have outlined previously (Parliamentary Question Number 239 of the 16/09/2016) that the fiscal space in 2017 was largely fixed but was subject to certain moving parts. In aggregate, revisions caused an increase in fiscal space of some €200m or approximately ¼ of a percent of the overall general government expenditure of €76.6 billion forecast for 2017. These revisions are outlined in Box 1 of Chapter 3 of the Economic and Fiscal Outlook in the 2017 Budget book and for the Deputy's convenience below.

For 2017, the reference rates and convergence margins were set by the European Commission in its Spring forecast published in May. However, the GDP deflator used is an average of the Commission's Spring and Autumn deflators. As the Commission's Autumn forecasts are not be published until after Budget 2017, this necessitated using the forecast for the Budget deflator from the Department of Finance's Autumn forecasts published on Budget day.  This deflator, reflecting the impact of the 2017 budgetary package, reduced fiscal space by €75m.

Revisions to the 2015 general government expenditure estimates were provided on a confidential basis to my Department following the first transmission of this data to Eurostat by the CSO. Revisions to the 2015 outturn have resulted in an update to the Department's estimate of the 2016 and 2017 expenditure base. Notably, the estimates of Gross Fixed Capital Formation (GFCF) were revised for the period 2012 to 2015.  To avoid penalising spikes in government investment in GFCF, the European Commission allows this investment to be averaged over a four year period with the result that any changes to the levels of this investment will impact on available fiscal space. Data from the CSO, revenue and expenditure surveys of the Local Authorities and other general government bodies are returned as part of the budgetary process, these also include updated forecasts of GFCF expenditure in 2016 and 2017 updating further the Department's estimates of the expenditure bases used. The effect of these changes to the estimates of GFCF expenditure in 2016 and 2017 has increased available fiscal space in 2017 by approximately €120m.  

The changes in fiscal space referred to in Budget Box 1 as "Revised Carryover" were described in Parliamentary Question Number 198 of 18/10/2016 and has two elements. The first being the impact of the revisions to the Revenue Commissioners methodology regarding the calculation of first year and full year costs of potential Budget tax packages. The second element is the impact on the cost of indexation in 2017 of the revised tax base. These changes combined increased fiscal space by €155m.