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Assessment Report: Ireland's Progress, Fiscal Projections, and Medium-Term Budgetary Framework

This briefing presents the 8th Fiscal Assessment Report, highlighting Ireland's economic recovery, improving public finances, and the implementation of the Medium-Term Budgetary Framework. It discusses the country's compliance with fiscal rules, forecasts for growth and government spending, and the challenges in medium-term budgetary planning.

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Assessment Report: Ireland's Progress, Fiscal Projections, and Medium-Term Budgetary Framework

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  1. Press BriefingFiscal Assessment Report, June 2015 03 June 2015

  2. IFAC: Some Background • Mandate: • Assess official forecasts • Assess the fiscal stance • Assess compliance with the budgetary rule • Endorsement of official macroeconomic forecasts • Five-member Council and five-member Secretariat • 8th Fiscal Assessment Report

  3. Context for Budgetary Policy • Ireland on track to exit the EDP based on 2015 outturn • Normal operation of Ireland’s new Medium-Term Budgetary Framework will come into effect for 2016 • Operation of the MTBF is a major focus of this assessment report

  4. Ireland Continues to make Progress as Economic Activity is Recovering and Public Finances Improving Real GDP and Real GNP (% Change Y-Y) Unemployment (% Total Labour Force)

  5. Recovery is Gradually Broadening Contributions to Real GDP Growth (Percentage Points, Y-Y)

  6. Deficit Continues to Fall General Government Balance (% of GDP)

  7. But Crisis Leaves Legacy of High Debt Levels General Government Debt (GGD) (% of GDP, GNP and Hybrid)

  8. Uncertainty Around Growth Prospects Real GDP Fan Chart Based on SPU 2015 projections (to 2016)

  9. Deficit Sensitive to Growth Shocks General Government Balance Paths (% of GDP) Note: The figure shows alternative projections of the balance ratio based on GDP growth forecasts that deviate from SPU2015 projections by 0.5, 1.0 and 1.5 percentage points in either direction. Sources: Department of Finance, internal IFAC calculations based on the Council's Fiscal Feedbacks Model.

  10. Medium-Term Budgetary Framework • Value of framework in preventing a return to the boom-bust cycle • A strong framework has been put in place comprising domestic and European elements • But issues of implementation in the SPU/SES • 2016 • Post-2016

  11. Compliance with Budgetary Rule in 2016

  12. Beyond 2016: The Fiscal Projections in the SPU • Post-2016 budgetary projections in SPU 2015 based on mainly technical assumptions for government revenue and expenditure • Forecasts show over-compliance with the fiscal rules even though stated policy in the Spring Economic Statement is to target minimum rule compliance • Forecasts for government spending do not fully account for likely costs of demographic ageing and cost pressures in delivering existing public services • Published tax revenue forecasts do not take into account Government commitments to reduce taxes • The ratio of non-interest government spending to GDP is projected to fall by over 5 percentage points between 2015 and 2020

  13. Illustrative Expenditure Scenario

  14. Requirements of the Medium-Term Budgetary Framework • Under the Budgetary Frameworks Directive, plans should be provided both on a no-policy change basis and also based on “policies envisaged” by the Government • Full acknowledgement of spending pressures, the overall value of intended revenue measures and a deficit path should play a central role in medium term projections • A realistic projection for the medium-term budgetary position is essential for medium-term budgetary planning • System of multi-year expenditure ceilings is not working effectively because the Government has consistently made adjustments to the ceilings • The move to annual revisions to the Expenditure Benchmark has removed the multi-year anchor

  15. Summary • Ireland will likely exit EDP on the basis of the 2015 outturn • The fall in the structural budget deficit in the Government’s plan is insufficient to meet the requirements of the Budgetary Rule in 2016 • Compliance with the Expenditure Benchmark (EB) would also be called into question if tax buoyancy is excluded • Post-2016, the forecasts in SPU 2015 does not fully meet the requirements of a medium-term fiscal plan as envisaged in the Government’s budgetary framework • Providing detailed budgetary plans as envisaged in the Directive is essential the medium-term fiscal position • Government needs to clarify how the system of multi-year ceilings will operate under the revised EB framework

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