Michael McGrath (Cork South Central, Fianna Fail)
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104. To ask the Minister for Finance his views on the role of the Irish Fiscal Advisory Council in providing commentary and advice to the Government; his plans to address the specific issues raised by the council in its recent assessment of the spring economic statement; and if he will make a statement on the matter. [24577/15]

Michael McGrath (Cork South Central, Fianna Fail)
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This question relates to Irish Fiscal Advisory Council and its role. I would like to hear the Minister's view of the recent independent assessment of the Irish Fiscal Advisory Council and to state whether he intends to introduce changes or reforms to the council's work. I wish to raise also the issue of the recent fiscal assessment report from the Irish Fiscal Advisory Council which deals with the spring economic statement. It made some sharp criticisms of the Government's approach to budgetary issues which I would like to thrash out with him.

Michael Noonan (Limerick City, Fine Gael)
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The Irish Fiscal Advisory Council was established in 2011 as part of a wider agenda of reform of Ireland's budgetary architecture as envisaged in the programme for Government.  Subsequently, following approval of the fiscal compact treaty by referendum in 2012, the Irish Fiscal Advisory Council was placed on a statutory basis to fulfil the role of monitoring compliance with the fiscal rules under the Stability and Growth Pact and, following further EU reforms, subsequently given the endorsement role for the macroeconomic forecasts which underpin the budget. 

In its recent fiscal assessment report, the council has again asserted its independence and produced some interesting pieces of analysis. While it is the case that I do not always agree with the outcome of the council's analysis, I very much value its expertise and its input as an independent voice in helping the Government to adhere to its own fiscal targets.

With regard to advice contained in the fiscal assessment report, as I have stated in the House previously, this is being considered by my officials.  As is normal, a comprehensive response to all of the pertinent issues will be published in the coming weeks. I will, however, give my initial views on a significant issue raised by the council.

As the Deputy will be aware, from 2016 onwards, the public finances in Ireland will be subject to the requirements of the preventive arm of the SGP.The European Commission assesses compliance with the preventive arm on the basis of two complementary pillars. The first is the minimum annual improvement in the structural balance and the second is compliance with the expenditure benchmark. The minimum improvement in the structural balance and the expenditure benchmark are in theory designed to be complementary, although differences between the two metrics can emerge from time to time.

The Fiscal Advisory Council noted that the fiscal projections contained in the stability programme update, SPU, did not show Ireland complying with our requirements under the Stability and Growth Pact - in other words, the improvement in our structural balance is below the required 0.6 percentage points in 2016.

However, SPU estimates show that for Ireland compliance with the expenditure benchmark is consistent with delivering a lower suggested quantum of structural adjustment in 2016. This somewhat counterintuitive outcome was explicitly addressed in the SPU, and emphasises the material problems posed by some of the technical aspects of the rules.

Additional information not given on the floor of the House

It should be noted that compliance with the requirements of the Stability and Growth Pact is ultimately assessed on the basis of analysis undertaken by the European Commission. In this context, the recent assessment of the SPU published by the European Commission as part of the European semester process finds that "on the basis of information in the 2015 Stability Programme Update recalculated according to the common methodology, progress towards the MTO is in line with the requirements of the preventive arm of the [Stability and Growth] Pact." The assessment by the Commission also finds that "the rate of expenditure growth net of discretionary revenue measures, as planned in the SPU, is expected to be in line with the requirements of the expenditure benchmark pillar". In summary, therefore, the projections in the SPU are consistent with the requirements of the Stability and Growth Pact.

While I will address other issues comprehensively in my formal response to the Council, I would strongly make the point that when formulating budget 2016, the Government is acutely aware of the importance of adhering to the fiscal rules and our fiscal policy will reflect this.

Michael McGrath (Cork South Central, Fianna Fail)
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The Minister described the Fiscal Advisory Council’s recent report as “interesting pieces of analysis”. It is much more than that because it made some very sharp criticisms. It should be possible to establish, as a matter of fact, whether it is accurate. It states, for example, that the SPU the Minister presented and the budgetary projections do not take account of explicit Government commitments to reduce taxes beyond next year. In other words, the €1.5 billion the Minister promised in the budget for 2016 in terms of tax cuts and spending increases is factored in but the Minister has gone on the record as having said we will be in a position for expansionary budgets up to 2020, including tax cuts. The Fiscal Advisory Council claims that is not factored into the numbers and the budget projections. Similarly, it makes a very strong criticism that the likely cost of demographic aging, in terms of pressures on certain areas of public services, health and education are not factored in as well as the delivery of existing programmes. That is not an interesting piece of analysis. The Minister should be able to establish, as a matter of fact, whether it is accurate or inaccurate. The House needs the answers to those questions.

Michael Noonan (Limerick City, Fine Gael)
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I admire the work of the Fiscal Advisory Council and am in general agreement with its overall view of the fiscal policy that should be followed. In the SPU, however, I had to use the data to hand at the time and we made it quite clear in the SPU that as the data changed the compliance rates would change. Subsequent to the publication of the SPU, the Commission came out with a new set of figures. I do not know why but the Fiscal Advisory Council does not seem to have factored that in because the Commission has said we comply fully with the fiscal rules. The assessment by the Commission finds that "the rate of expenditure growth net of discretionary revenue measures, as planned in the SPU, is expected to be in line with the requirements of the expenditure benchmark pillar". Rather than our coming in at 0.4% or 0.3% of an adjustment as against 0.6% the Commission has said we will come in at 0.8% in the next budget on the basis of the new data. It is not the Department of Finance or the Fiscal Advisory Council that decide whether one is complying or not, it is the Commission and it is saying we are well within the boundaries of requirement.

On the Deputy’s other point, we made it quite clear that while we were spelling out the details of what was required for the 2016 budget beyond that we envisage a change of government. Maybe the same parties will compose it, maybe other parties will be in it. We said in the SPU that we were projecting on a no policy change but we did outline the fiscal space. The Deputy may regard that as a criticism but I do not think it would be appropriate for a government in its last year of office to do detailed budgets for the next five years, 2016 is within our remit, 2017, 2018, 2019 and 2020 are not. We identified the fiscal space. We said it was on a no policy change. It will be a matter for the next government to fit the policy into the fiscal space available but we did identify the fiscal space.

Michael McGrath (Cork South Central, Fianna Fail)
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From what I hear the Minister saying, he acknowledges that while his political commentary around the spring statement was that there would be scope for an expansionary budget up to 2020, with further tax cuts beyond next year, that is not factored into the numbers.

Michael Noonan (Limerick City, Fine Gael)
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It is factored into the numbers, but the break-up of the measures within the fiscal space is not factored into them.

Michael Kitt (Galway East, Fianna Fail)
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I will allow the Minister to contribute again in a moment.

Michael McGrath (Cork South Central, Fianna Fail)
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That is not what the Irish Fiscal Advisory Council states.

Michael Kitt (Galway East, Fianna Fail)
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Deputy McGrath should ask a question.

Michael McGrath (Cork South Central, Fianna Fail)
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There is a fundamental disagreement here between the Irish Fiscal Advisory Council's report and the Department of Finance.

Michael Noonan (Limerick City, Fine Gael)
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I will publish a detailed reply to the report.

Michael McGrath (Cork South Central, Fianna Fail)
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That would be very helpful. The Minister should also accept the Fianna Fáil Party's recommendation that, as the general election approaches, the Irish Fiscal Advisory Council be given the power to cost the proposals of all the political parties and Independent Members. To do so would be to do a great service to members of the public who will have to work out all the different noises emanating from the political parties about this or that being costed or not taken into account. Let the gospel be as per the Irish Fiscal Advisory Council when it comes to the election manifestos of different parties and the extent to which they are costed.

Michael Noonan (Limerick City, Fine Gael)
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I am not sure all the Opposition parties would be pleased if I were to do as the Deputy suggests.

Michael McGrath (Cork South Central, Fianna Fail)
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Let the general public decide on that issue. The point is that the Irish Fiscal Advisory Council is essentially arguing that known costs which the State must incur - there is no element of discretion and nothing arbitrary about these, as they are eminently predictable - have not been factored into the projections. I refer to the impact that demographics will have on public services. Similarly, the tax cuts promised beyond 2016 have not been factored into the projections. This is written in black and white in the Irish Fiscal Advisory Council's report. If the Minister believes the council is wrong, he should say so and explain the reasons it is wrong. The council is independent, whereas the Minister is a politician.

Michael Noonan (Limerick City, Fine Gael)
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I, too, am independent.

Michael McGrath (Cork South Central, Fianna Fail)
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The Minister is a practising politician.

Michael Noonan (Limerick City, Fine Gael)
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I am answerable to the House and constitutionally the Minister for Finance of the country. I do not have to follow the advice of the Irish Fiscal Advisory Council when it misunderstands my position.

Michael McGrath (Cork South Central, Fianna Fail)
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The Minister has a duty to explain how the council got it wrong. These are not matters of interpretation but factual issues.

Michael Noonan (Limerick City, Fine Gael)
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I do not believe the Irish Fiscal Advisory Council got it wrong. I agree with the main thrust of its advice, as I always have. The council operates in very much the same space as the Government and me. There is disagreement about some elements of detail, and much of the detail the council has focused on is due to a misunderstanding of what was in the stability programme update. I do not know the reason the council did not take into account the forecasts of the European Commission and did not acknowledge the Commission's statement that, on current trends, the Government will be entirely within the fiscal rules on budget day. The Commission has stated that we will achieve an adjustment of 0.8%, rather than the 0.6% adjustment required. I will reply in detail, as I am required to under law, and we will deal with all the issues. However, I do not see any great conflict between me and the Irish Fiscal Advisory Council. The Deputy must appreciate that the council has a difficult job. As it is mandated to give a counter-view, it must search around for such a view, even when it agrees with me.

Michael McGrath (Cork South Central, Fianna Fail)
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It must give its view, which does not have to be a counter-view.