Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

113. To ask the Minister for Finance the amount by which Ireland would miss its MTO target in 2019 if the €500 million dedicated to the rainy day fund were to be spent in 2019; and if he will make a statement on the matter. [27699/18]

Paschal Donohoe (Dublin Central, Fine Gael)
Link to this: Individually | In context | Oireachtas source

The estimates prepared by the European Commission, in its Spring Forecast, and my Department, in the Stability Programme Update 2018, both project a structural deficit of 0.4 per cent of GDP for next year.

If an additional €500 million were to be spent this would, in the first instance, increase the deficit, and have a corresponding impact on the structural position. On the assumption that all other variables are unchanged the resulting structural deficit would be 0.6 per cent of GDP in 2019.

Ceteris paribusthe MTO would, therefore, not be achieved next year.

The Government is committed to establishing the Rainy Day Fund as a fiscal buffer in the event of a major shock to the economy.

As I set out in the 2018 Summer Economic Statement, the increases permitted under the fiscal rules represent money that we would have to borrow. Budgetary policy will be formulated on the basis of what is right for the economy at this stage in the cycle and not by rules that would increase borrowing.

Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

114. To ask the Minister for Finance the minimum structural effort required under the fiscal rules to move towards the medium term objective in a year with a structural deficit of 0.9%; if Ireland is obliged under the European fiscal rules to move towards its medium term objective of a structural deficit of 0.5%; and if he will make a statement on the matter. [27700/18]

Paschal Donohoe (Dublin Central, Fine Gael)
Link to this: Individually | In context | Oireachtas source

A Member State in the preventive arm of the Stability and Growth Pact is legally required to be at, or making sufficient progress towards, its Medium Term budgetary Objective (MTO). Ireland's MTO is a structural deficit of 0.5 per cent of GDP.

The European Commission sets the required annual fiscal adjustment based on inter alia the cyclical position of the economy.  In 'normal' economic times, a Member State not at its MTO should improve its structural deficit at a rate of 0.6 per cent of GDP per annum.   A Member State cannot be required to over-achieve its MTO but is free to do so if it so chooses.

The Commission has projected a structural deficit in Ireland of 0.6 per cent of GDP for 2018.  Accordingly, the Commission has proposed a Country Specific Recommendation that Ireland should achieve its MTO next year.  My Department has projected a structural deficit of 0.9 per cent of GDP for this year; however, it is the Commission's figures that matter from a legal perspective.

As I set out in the 2018 Summer Economic Statement, budgetary policy will be set so as to reduce borrowing and steadily increase public expenditure underpinned by stable and predictable tax revenue.

Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

115. To ask the Minister for Finance if a country is not at its MTO, if it is obliged under the fiscal rules to apply a convergence margin; the way in which the convergence margin is calculated; the amount in monetary terms of the convergence margin for 2019 (details supplied); and if he will make a statement on the matter. [27701/18]

Paschal Donohoe (Dublin Central, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Under the Stability and Growth Pact, Member States must attain a country-specific Medium Term budgetary Objective (MTO) which is set in structural terms. For Ireland this is currently set as a structural deficit of 0.5 per cent of GDP.

When a Member State is not at its MTO, a convergence margin applies. The process of calculating this convergence margin is detailed in the 2018 Edition of the Vade Mecum on the Stability and Growth Pact. This may be found athttps://ec.europa.eu/info/publications/economy-finance/vade-mecum-stability-and-growth-pact-2018-edition_en.

The convergence margin is set by the Commission, following its assessment of the Stability Programme. It is calculated on a country-specific basis and is designed to ensure that the MTO is achieved in a suitable manner.

The convergence margin for 2019 is set out in table 3 of the 2018 Summer Economic Statement and reduces the reference rate of potential growth by 0.6 percentage points.

In nominal terms this equates to c.€400 million.  

Of course, had there been no convergence margin for 2019 and this money was spent, it would have increased the deficit (both headline and structural).

As I have said, the increases permitted under the fiscal rules represent money that we would have to borrow. Budgetary policy will be formulated on the basis of what is right for the economy at this stage in the cycle and not by rules that would increase borrowing.