Minister’s Brief

Detail:
Budgetary position
The deficit last year is estimated at about 1½ per cent of GDP.
The general government debt-to-GDP ratio is estimated at around 95 per cent at end-
2015 (close to the euro area average), down from the 2012 high of 120 per cent.
Fiscal Policy Framework/Governance
As a result of reducing the deficit to below 3 per cent of GDP last year, the public finances
in Ireland are now subject to the requirements of the preventive arm of the Stability and
Growth Pact (SGP).
This is somewhat more technical, as the requirements are set in structural terms (rather
than headline terms). In summary, the requirements are to:
o Define Ireland’s country-specific medium term (budgetary) objective (MTO) in the
forthcoming Stability Programme (subject to a minimum of -0.5 per cent of GDP) –
this will require a Government decision in advance of publication of the Stability
Programme;
o Progress towards the MTO at a sufficiently rapid pace (in normal times improve
the structural balance by 0.6 per cent of GDP; improve it by more in ‘good’
economic times);
o Remain at the MTO once it has been achieved;
o These requirements can be achieved by complying with the so-called ‘expenditure
benchmark’;
o This limits the growth in public expenditure taking account of discretionary
revenue increases/decreases, to the trend growth rate of the economy if a
Member State is at its MTO and to a lower rate if the MTO has not been achieved;
o Setting expenditure (net of discretionary taxation measures) in line with the trend
(as opposed to the actual growth rate of the economy) means that budgetary
policy will not be pro-cyclical;
o In addition, expenditure changes linked to trend growth reduce the probability of
windfall taxes being used to finance permanent increases in expenditure;
o Reduce the level of general government debt in excess of 60% of GDP by one
twentieth each year.
Ireland is not yet at its MTO. We must therefore improve the structural deficit by at least
0.6 per cent this year. At the time of the 2016 Budget an improvement of 0.8 per cent
was projected.
The required improvement for 2017 will be set in the Country Specific Recommendations
in June as part of the European Semester. It is currently expected to be 0.6 per cent of
GDP.
It is envisaged that we will eliminate the structural deficit sometime over the period 2018
/ 2019.
Being on the adjustment path towards the MTO should, under reasonable assumptions
regarding inflation, ensure compliance with the debt reduction rule
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