Michael McGrath (Cork South Central, Fianna Fail)
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89. To ask the Minister for Finance the amount of the estimated fiscal space of €1.2 billion for 2018 that has already now been accounted by the taxation and expenditure items announced in budget 2017; if he will provide a breakdown of the items that use up 2018 fiscal space; and if he will make a statement on the matter. [31349/16]

Pearse Doherty (Donegal, Sinn Fein)
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104. To ask the Minister for Finance the gross and net fiscal space for each of the years 2018 to 2022; and if he will make a statement on the matter. [31433/16]

Michael Noonan (Limerick City, Fine Gael)
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I propose to take Questions Nos. 89 and 104 together.

Estimates of the gross and net fiscal space for the period 2018 to 2021 can be found in Table A7 Annex 2 of the Budget 2017 book. No fiscal or other estimates have been undertaken for 2022.  For the convenience of the Deputy, the gross and net fiscal space for the period 2018 to 2021 is set out in the following table.

Gross Fiscal Space is simply the permitted fiscal space arising from applying the currently forecast benchmark growth rates to the projected expenditure aggregate for the preceding year. These amounts are not final and are based on indicative projections for the GDP deflators, reference rates and convergence margins for each of the relevant years as set out in Budget 2017 (see Table A.7). The actual GDP deflators, reference rates and convergence margins values used by the Commission to assess compliance with the rules each year beyond 2017 will be based on Commission estimates for each year compiled in their Spring forecast of the preceding year, and in relation to the GDP deflator, the Autumn forecasts as well, each year. 

Another source of potential variance relates to the precise composition of the general government expenditure outturn of the preceding year. This is due to the fact that some items such as interest and the level of cyclical unemployment expenditure are excluded from the expenditure benchmark calculation while gross fixed capital formation is smoothed over a 4 year period. With regard to cyclical unemployment, the Commission's estimates are based on their own data. Given the volatility of estimates of structural unemployment for Ireland, which is used to derive cyclical unemployment, calculations of fiscal space are also subject to change due to this factor.

In the year after a Member State reaches its Medium Term Objective (MTO) set under the balanced budget fiscal rule, the convergence margin requirement under the expenditure benchmark ceases.  As outlined in Table 12 in Chapter 3 of the Budget 2017 book, my Department forecasts that Ireland will reach its MTO of a balanced budget in structural terms, defined as -0.5 percent of GDP,  in 2018.  As a result, the convergence margin would not be applied to the expenditure benchmark calculation from 2019 on. This leads to a significant increase in the projected fiscal space from 2019 onward, based on the assumption that Ireland will meet its MTO in 2018.

The net fiscal space is the additional room available beyond spending assumptions included in the Budget's baseline spending projections whilst still complying with the upper limit posed by the Expenditure Benchmark. The baseline spending projections shown in Table A7 are on an ex-ante basis and do not include the unallocated resources captured in the baseline expenditure projections set out in Table 12. However, Table A7 does include pre-committed expenditures such as the annual cost of providing for demographic spending pressures together with a number of other anticipated elements such as the Public Capital P lan, the cost of the Lansdowne Road Agreement and a number of other calls on the Central Fund, including increases to the EU budget contribution.  Net fiscal space also takes account of discretionary revenue measures that increase or decrease general government revenue.  The additional revenue generated from a political decision not to proceed with indexation, estimated to yield just below €450m, is included in the discretionary revenue measures set out in Table A7.

On the basis of the above assumptions, gross fiscal space for 2018 to 2021 amounts to a cumulative €12.1 billion and net fiscal space amounts to a cumulative €9.3 billion.  

With regard to 2018, the carryover effect of tax measures outlined in Budget 2017 will absorb some €172.5m of the available €1.2billion net fiscal space set out in the table above.

As set out on page 36 of the Expenditure Report 2017, published by the Department of Public Expenditure and Reform, there is an estimated carryover impact into 2018 of approximately €½ billion arising from certain of the increases in Departmental expenditure included in the Budget Estimates for 2017. Expenditure estimates in Table A7 will be updated as the details in relation to implementation of Budget measures are further developed.

The spending review, scheduled to be carried out next year in advance of Budget 2018, will among other issues, consider the policy options for meeting the additional cost arising in 2018 of the Budget 2017 expenditure measures.

Finally it is important to stress that the figures, as always, are work-in-progress estimates and will evolve over time.