Written answers

Thursday, 18 May 2017

Department of Finance

Stability and Growth Pact

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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78. To ask the Minister for Finance if he has made progress in the reform of EU fiscal rules in view of allowing capital investment and the ongoing review of the capital plan; and if he will make a statement on the matter. [23620/17]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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The fiscal rules - formally known as the Stability and Growth Pact (SGP) - have direct application through a number of EU regulations. Changes to these regulations would have to follow the normal EU approach starting with a proposal from the Commission before consideration by Member States and the European Parliament.

However, there are matters within the SGP subject to the discretion of the European Commission. The Commission regularly issues updated guidance on how it will implement the SGP. It is in this context that I sought and secured a major change from the Commission in achieving an annual update of the reference rate used in the expenditure benchmark.  The former practice had been to fix the reference rates for three years at a time. This new approach significantly increases the permitted room for expenditure growth, which would not have been possible under the former practice.  In line with the principle of equal treatment for all Member States, the annual update of reference rates applied to all Member States.

The SGP also includes flexibilities that are designed to promote capital investment. For instance, within the expenditure benchmark, capital formation increases are smoothed over four years with the result that only one quarter of the increase in public investment must be funded in the first year from within the fiscal space. This provision, which means increases in capital spending for housing and other purposes can be front-loaded within the EU rules, has been utilised in Ireland's budgetary plans.

It should also be noted that there are other flexibility provisions within the rules designed to encourage capital investment. These are the investment clause and the structural reform clause. Specifically, these provisions allow for temporary deviations from the required structural budgetary adjustment if spending on capital investment can be shown to qualify for either the investment clause or the structural reform clause. Both of these provisions are subject to strict conditions; and while Ireland has not yet been in a position to apply given where we are in the business cycle, the situation is kept under constant review by my officials.

The Government is very conscious of the need to boost the supply of critical infrastructure. Investment in public infrastructure is vital for the medium and long-term competiveness of the economy as well as for underpinning social cohesion through the provision of vital services to people in the form of schools, public transport, housing, etc. The public capital plan provides for €42 billion of capital investment up to 2021 and the Government remains committed to this.  Further to this the Government set out in the 2016 Summer Economic Statement proposals for an additional cumulative €5.1 billion in capital spending over the period 2017 -2021. From this additional capital, €2.2 billion was allocated to the Government's initiatives aimed at tackling the housing crisis, as detailed in the Action Plan on Housing and Homelessness. Taking account of further allocations made in Budget 2017, approximately €2.65 billion remains to be allocated over the period 2018 - 2021.

In addition, the Government has been exploring the objective to create 'off-balance' mechanisms that bring investment into social housing which is additional to the funding being provided directly by the State. There is ongoing engagement with a broad array of domestic actors and European authorities to explore achievable solutions.

The Capital Plan is now being reviewed to ensure that capital spending is strictly aligned with national economic and social priorities, consistent with Programme for Partnership Government objectives.  This includes examining how available capital funds can best be allocated to underpin sustainable medium-term economic growth and future growth potential. 

The process will comprise a focused review of priorities aimed primarily at advising Government, in the context of Budget 2018, on how the additional capital funding committed by Government should be allocated over the remainder of the plan. This will examine priority areas for investment, consistent with the objectives of the existing Capital Plan and the specific investment priorities contained in the Programme for Government.

Finally, I would point out that we are still running a deficit and our public debt remains high by international standards. The answer, therefore, is not simply about spending more; it is about getting more from each euro of taxpayers' money that is spent.


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