Pearse Doherty (Donegal, Sinn Fein)
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361. To ask the Minister for Finance the structural balance in each of the years 2014 to 2022; and the difference in nominal terms between the structural balance and a structural balance of -0.5% of GDP in each of those years. [1876/23]

Michael McGrath (Cork South Central, Fianna Fail)
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The structural balance of 0.5 per cent of GDP referred to in the question corresponds to Ireland’s Medium-Term Budgetary Objective (MTO) under the European fiscal rules. As the Deputy has referenced this level of structural balance in terms of GDP, the table below provides historical estimates of such. However, it is important to note a number of relevant issues when considering these estimates.

Firstly, as highlighted on numerous occasions by the Department of Finance, GDP is not an appropriate indicator of the Irish economy. As such, scaling a fiscal ratio by GDP can paint an overly benign picture. As with all other fiscal indicators, the structural balance was published at Budget time as a share of modified gross national income (GNI*), to better reflect the underlying budgetary position.

Secondly, the structural balance relies on estimates of the output gap, an unobservable variable. Estimates of the output gap are subject to large ex-post revisions due to a number of factors, including data revisions, methodological changes and changes to the macroeconomic outlook. The impact of the Covid-19 pandemic and the cost-of-living crisis has exacerbated the difficulties in estimating the structural balance.

Finally, the figures for the structural balance provided below are ex-post estimates for the historical series. As such, the gap between the structural balance and the MTO in any given year is different to the real-time estimate of that gap when budgetary policy was being set. Considering this, it would be inappropriate to assess the fiscal policy stance in a given year against the figures provided below.

Estimates in line with 2023 Draft Budgetary Plan rounded to closest €100 million.

More broadly, as the Department has reiterated on many occasions, nuances in the Irish economy and difficulties in measuring the cycle mean that a mechanical application of the current European fiscal rules and mere compliance with the MTO may not be sufficient to ensure the sustainability of the Irish public finances. Such an approach could result in inappropriate fiscal policy, misaligned with the underlying health of the economy.

In addition, it is important to note that the current European fiscal framework is currently under review. As the Deputy will be aware, the European Commission put forward initial proposals for reform of the framework in November. As part of these, the Commission has proposed that annual fiscal surveillance will be based on a single operational indicator, net primary expenditure anchored on a debt sustainability target, with no formal role for the structural balance in the framework going forward.

Note: Estimates provided in the table above are in line with the 2023 Draft Budgetary Plan. The gap to the MTO is rounded to the closest €100 million. Windfall corporation tax revenues are considered as one-off revenues. As such, estimates of windfall corporation tax revenue between 2015 and 2022 are removed from the structural balance.