Pearse Doherty (Donegal, Sinn Fein)
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162. To ask the Minister for Finance his views on whether a margin of compliance (details supplied) is appropriate; and his plans to alter this margin of compliance in advance of budget day. [39330/17]

Pearse Doherty (Donegal, Sinn Fein)
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163. To ask the Minister for Finance his views on whether over-adhering to the fiscal rules for 2018 would be counterproductive in respect of a matter (details supplied); and if he will make a statement on the matter. [39331/17]

Paschal Donohoe (Dublin Central, Fine Gael)
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I propose to take Questions Nos. 162 and 163 together.

Fiscal space is calculated, in the first instance, using the expenditure benchmark.  The projected fiscal space from this calculation is then incorporated into the fiscal forecasts, in accordance with Government policy, in order to calculate the resulting general government balance and, in turn, the projected structural balance. My Department can then determine if the outcome complies with the balanced budget rule.  Compliance with the debt reduction rule is also examined.

The outcome from the expenditure benchmark calculation, as set out in the 2017 Summer Economic Statement (SES), resulted in the identification of additional fiscal space of about €150 million above the previous estimate.  However, using this additional fiscal space from the expenditure benchmark would result in non-achievement of the medium-term budgetary objective (MTO) next year.  In order to ensure achievement of the MTO next year, my Department calculated that it would not be possible to use the additional €150 million of fiscal space in 2018 and this is reflected in the fiscal forecasts in the SES.  

This "margin of compliance", referred to by the Deputy in his questions, has not been factored into minimum compliance with the expenditure benchmark. Not using the additional €150 million will result in over-compliance with the minimum level required by the benchmark.  However, this is necessary to help ensure achievement of the MTO in 2018.   

Achieving the MTO has been the anchor for fiscal policy since correcting the excessive deficit in 2015.  We are on-track to balance the books next year.

At the same time, it is clear that the economy is now on a path towards full-employment.  In these circumstances, the focus must increasingly shift towards the appropriate stance of fiscal policy so that policy does not contribute to over-heating the economy.  In other words, the focus must be on what is right for the economy and not solely what is legally permissible under the rules.  I want to assure the Deputy that the Government will not repeat the mistakes of the past by adopting inappropriate taxation and spending policies.