Micheál Martin (Cork South Central, Fianna Fail)
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78. To ask the Minister for Finance if he or his officials have discussed the possibility of requesting flexibility on the way in which the EU fiscal treaty rules are applied to capital infrastructure projects; and if he has discussed or contemplated requesting the EU for flexibility to the fiscal rules to allow the State to prepare for Brexit, in particular. [27833/17]

Paschal Donohoe (Dublin Central, Fine Gael)
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The fiscal rules to which Ireland is subject to 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. 

The issue of facilitating greater flexibility in the application of the fiscal rules has received significant focus at European level and framed discussions on the establishment of the structural and investment clauses, which were codified by the Commission in November 2015. Specifically these provisions allow for temporary deviations from the required structural budgetary adjustment, subject to strict conditions.   

The harmonised methodology for calculating the economic cycle used in the implementation of the SGP remains an area with limitations within the fiscal rules. My Department has secured useful changes to this methodology over the years by consistently raising concerns and objections at European level. These changes have partially compensated for the reality that the harmonised methodology is not suitable for small open economies. My Department continues to advocate for improvements in the harmonised methodology and will continue to engage constructively on this and other relevant technical issues.

The Government has repeatedly acknowledged the need for increased public investment. The current Capital Plan sets a baseline from which this Government intends to increase investment in critical infrastructure, and in areas such as housing and health, as the Deputy has identified into the future. As outlined in the 2017 Estimates, gross voted capital expenditure will increase to €4.5 billion in 2017. This represents an increase of €325 million in comparison to the 2016 outturn. By 2021 it is envisaged that Gross Voted Capital Expenditure will reach €7.29 billion, an increase of over 100 per cent in comparison to its level in 2014.  These increases in investment over the coming years will be allocated to identified priorities on the basis of the outcome of the review of the Capital Plan currently under way.

It should be further noted that the SGP has a feature designed to promote capital investment in 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.

To date, Ireland has not been eligible to apply for the use of the investment or structural reform clauses.  While this remains the case in relation to the investment clause, Ireland is moving into a position where it could apply for use of the structural reform clause.

The Deputy should also be aware that any decision to increase capital expenditure over and above already planned levels would need to balance the danger of potentially over-heating in the economy with the need to address infrastructure priorities and risks such as Brexit. The rainy day fund is one measure announced by the government which would provide a prudent counter cyclical buffer to the economy. This is currently under review and further information will be provided in the Summer Economic Statement (SES) to be published in July.