The European Commission has warned that the Government risks a breach of formal spending guidelines next year but it has found Budget 2016 “broadly compliant” with European fiscal rules.
Minister for Finance Michael Noonan welcomed the endorsement of the budget by the commission, which is not seeking any change.
He said the extent of the risk cited by the commission in respect of Ireland’s expenditure benchmark was “not significant” but accepted it underscored the requirement for tight spending control.
The commission’s positive assessment of the Irish budget came as it told the governments of Italy, Lithuania, Austria and Spain their plans for 2016 risked breaking fiscal rules.
“The commission is of the opinion that the draft budgetary plan of Ireland . . . is broadly compliant with the provisions of the stability and growth pact,” the EU executive said.
“In particular, according to the commission forecast, there is a risk of some deviation from the expenditure benchmark in 2016.”
Balanced budget
The expenditure benchmark, linked to the potential real growth rate of the economy, sets a formal limit on spending to encourage the Government to move towards a balanced budget when excluding once-off items.
The Minister said the commission had observed Ireland was on track to correct the excessive deficit.
“I also note that the commission has identified some risk, though not significant, in relation to the expenditure benchmark,” said Mr Noonan. “This is why we need to maintain a tight control of expenditure and my Cabinet colleagues and I are committed to this strategy. Delivering on our fiscal commitments has been a cornerstone of Government policy over recent years.”
In its report on the budget, the commission noted that €1.5 billion supplementary spending in the last three months of the year came at a time when the economy was already growing at an exceptionally strong rate.
As a result, it reiterated earlier European guidance that Dublin should use revenue windfalls to accelerate debt reduction.
Recommendations
The commission also said it invited the Government “to take the necessary measures” to ensure 2016 Budget will be compliant with the pact.
However, Mr Noonan said the commission has estimated the budget implies a 0.9 per cent improvement in structural or permanent deficit next year. Such an improvement was greater than the 0.6 per cent reduction required under the rules, he said.
“This is further evidence that Ireland is moving towards a balanced budget in structural terms more rapidly than is required.”
The commission noted “some progress” by Dublin towards the execution of European policy recommendations on fiscal governance. In its report, however, the commission invited Dublin to make further progress on that front.
The recommendations in question, adopted in July by EU finance ministers, called on the Government to “limit the existing discretionary powers to change expenditure ceilings beyond specific and predefined contingencies”.
With a budget deficit under 2 per cent of gross domestic product possible by the end of the year, Dublin is on track to exit the “excessive deficit” disciplinary process which applies to member states whose deficits exceed 3 per cent.
