Written answers

Thursday, 1 June 2017

Department of Finance

Stability and Growth Pact

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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72. To ask the Minister for Finance if he has made formal proposals to the European Commission to revise the fiscal rules under the Stability and Growth Pact in favour of more flexibility around capital investment; and if he will make a statement on the matter. [26401/17]

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 and domestically via the Fiscal Responsibility Act. 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.

There are already in place specific provisions within the SGP 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 the investment clause and the structural reform clause allow for temporary deviations from the required structural budgetary adjustment if spending on capital investment can be shown to qualify for either of these clauses, which are subject to strict conditions.

My approach to promoting additional investment has mainly involved securing additional EIB investment (off-balance sheet) and in this context, the Minister for Public Expenditure and Reform met with the EIB President last week to discuss, among other issues, how this could be moved forward. 

The fiscal rules are designed to promote budgetary discipline and underpin sustainable economic growth. While Ireland's economy is growing and debt is on a downward trajectory, the debt level is still comparably high and caution must be exercised due to the potential of rollover risk should interest rates increase. We are a small and very open economy in a world that has more risks than usual. Compliance with the fiscal rules underpins the Government’s objective of maintaining sound public finances. 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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