Paul Murphy (Dublin South West, Anti-Austerity Alliance)
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34. To ask the Minister for Finance his views on the comments by the chair of the Irish Fiscal Advisory Council (details supplied) on compliance with EU fiscal rules; his views on whether the EU fiscal rules are therefore overly restrictive; and if he will make a statement on the matter. [30839/16]

Michael Noonan (Limerick City, Fine Gael)
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In his comments on Morning Ireland after the Budget, Professor McHale pointed out that my Department is now forecasting a structural improvement for 2016 of 0.3% of GDP against the required improvement of 0.6% under the balanced budget rule.  For 2017, he switched to the other rule, the expenditure benchmark, and pointed out that my Department is forecasting that expenditure will exceed the permitted level of expenditure by about €200 million. He also pointed out that these breaches are not large enough to bring fines.

Taking each of these in turn, I and my Department have frequently highlighed that the harmonised methodolgy used to calculate the structural balance is not suitable for a small open economy.  In Budget 2016, the forecast nominal general government deficit was about €2.8 billion. The forecast for 2016 in Budget 2017 is for a deficit of €2.4 billion.  Although the forecast structural deficit also changed down from 2.5% of GDP to 1.9%, the improvement was reduced to 0.3 per cent from 0.8 per cent because the forecast outturn for 2015 of minus 3.2% turned into an outturn of 2.2% of GDP.  This is one reason why our fiscal planning looks to the expenditure benchmark in the first instance.

The €200 million excess over permitted expenditure under the benchmark in 2017 is due to the projected increase in our EU Budget contribution arising from the large revision in our GDP.  As this is a factor beyond our control, the Government has decided not to alter its fiscal plans to cope with a one-off level shift in our EU contribution.  It should be noted that the European Commission applies an overall assessment encompassing performance against both rules when assessing compliance.  Accordingly, we expect that the European Commission will find that Ireland is broadly compliant with its obligation - indeed, I would point out that Ireland is one of the countries that the European Commission has not written to seeking clarification or changes.

I do not agree that the fiscal rules are overly restrictive.  They are designed to promote budgetary discipline and underpin sustainable economic growth. Given our comparably high debt level and the fact that we are a small and very open economy in a world that has more risks than usual,  it makes sense to get to a balanced budget in structural terms as planned in 2018. By reducing our debt to much lower levels, we will increase our capacity to withstand shocks by building our capacity to borrow. The fiscal rules underpin and facilitate achieving this objective.