Press Briefing Fiscal Assessment Report, June June 2015

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 8 th Fiscal Assessment Report

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

R EAL GDP AND R EAL GNP (% C HANGE Y-Y) Ireland Continues to make Progress as Economic Activity is Recovering and Public Finances Improving U NEMPLOYMENT (% T OTAL L ABOUR F ORCE )

C ONTRIBUTIONS TO R EAL GDP G ROWTH (P ERCENTAGE P OINTS, Y-Y) Recovery is Gradually Broadening

G ENERAL G OVERNMENT B ALANCE (% OF GDP) Deficit Continues to Fall

G ENERAL G OVERNMENT D EBT (GGD) (% OF GDP, GNP AND H YBRID ) But Crisis Leaves Legacy of High Debt Levels

R EAL GDP F AN C HART B ASED ON SPU 2015 PROJECTIONS ( TO 2016) Uncertainty Around Growth Prospects

Deficit Sensitive to Growth Shocks G ENERAL G OVERNMENT B ALANCE P ATHS (% OF GDP) Note: The figure shows alternative projections of the balance ratio based on GDP growth forecasts that deviate from SPU 2015 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.

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

Compliance with Budgetary Rule in 2016

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

Illustrative Expenditure Scenario

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

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