Thursday, 17 November 2022
Department of Finance
157. To ask the Minister for Finance if expenditure from the National Surplus (Exceptional Contingencies) Reserve Fund is classed as general Government expenditure and subject to EU fiscal rules; his views on whether this could potentially limit its use in terms of counter-cyclical expenditure in response to economic slowdown or shock; and if he will make a statement on the matter. [57102/22]
As the Deputy will be aware, the Fiscal Responsibility Act 2012 imposes a duty on the Government to endeavour to comply with the EU fiscal rules, known as the Stability and Growth Pact (SGP). Expenditure from the National Reserve Fund (NRF) would be classified as General Government expenditure and, therefore, fall within the scope of the Pact. However, it is important to note that the Fund was not intended to be drawn down to finance ordinary expenditure.
Under the 2019 Act establishing the NRF, a number of criteria for drawdown from the Fund were set out. These are: a) to remedy or mitigate the occurrence in the State of exceptional circumstances; b) prevent potential serious damage to the financial system in the State and ensure the continued stability of that system; or c) to support major structural reforms. These provisions reflect the allowances made for the existence of "exceptional circumstances" within the SGP. More specifically, the General Escape Clause (GEC) of the SGP allows for temporary deviations from a Member States’ budgetary requirements as set out under the Pact under ‘exceptional circumstances’. The GEC was activated in response to the Covid-19 pandemic to allow Member States to take all necessary actions but remains in place up to 2023.
At the same, time, a review of the EU’s economic governance framework was relaunched last October and discussions have been ongoing since then. On November 9th , the Commission adopted a Communication which sets out the Commission’s thinking regarding the potential design of a reformed framework. The proposals put forward the possibility of country-specific escape clauses as well as measures aimed at incentivising investments and structural reforms. This Communication represents the beginning of extensive discussions that will continue throughout the coming months. Details related to the functioning of reserve funds within the framework of the reformed rules have yet to be discussed. However, in Ireland’s view, it is important that Member States are encouraged through the fiscal framework to build up fiscal buffers, where possible, to mitigate against any future economic shocks. In this context, officials from my Department will be actively engaged with the discussions of reforms to the EU fiscal framework over the coming months.