Fiscal Responsibility Bill 2012

PaulConnaughton-2-150x150

Dáil Éireann, 9th October 2012

Thank you for the opportunity to speak on this Bill.

When the Irish electorate went to the polls on May 31st last, they endorsed the contents of the Fiscal Compact Treaty and this Bill represents the enactment of their wishes.

Since that vote at the end of May, the need for this Europe-wide agreement on budgetary rules has become even more apparent and it is only through greater budgetary discipline that the European project will be steered through the current impasse.

Ratifying this Bill is crucial if the country is to meet its obligations under the treaty before the deadline of the end of this year and I am heartened by this Government’s commitment to enacting this Bill at the earliest possible opportunity.

This Bill imposes a duty on the Government to stay within budgetary rules and if the deviation from a medium-term budgetary objective is more than 0.5% of GDP, then the Government will have to implement correction mechanisms as agreed under the Common Principles adopted by the European Commission.

It will be difficult for Ireland to meet all its budgetary objectives in coming years, but the upside of this Stability and Growth Pact is stability and that is a key factor in creating the conditions in which the country’s economic fortunes can be turned around.
Unprecedented shocks to the Irish economy prior to this Government taking office created a very precarious financial position which eventually led to the institution of a deficit procedure involving the troika of the European Central Bank, the European Commission and the International Monetary Fund. I note that the debt rule provisions of this Fiscal Responsibility Bill will require Ireland to reduce debt in excess of 60% of GDP by one twentieth each year and this will apply for three years after Ireland has exited the deficit procedure in three years’ time.

The Bill will assign monitoring and assessment functions to the Irish Fiscal Advisory Council and my only regret in relation to this council is that it wasn’t instituted ten years ago and perhaps we wouldn’t have plummeted to the economic depths experienced in recent years. This independent body will be tasked with assessing the official Spring and Autumn macroeconomic and budgetary forecasts produced by the Department of Finance.

I also welcome the fact that if the Government does not accept the assessments of the Irish Fiscal Advisory Council, that it must explain its reasons publicly and believe that this is a necessary underpinning of the principles involved.

The Fiscal Responsibility Bill 2012 represents a growing acknowledgement at European level that the structures which were in place were somewhat inadequate as they have allowed the current impasse to develop, have allowed some countries, including Ireland, to incur massive debt, which now must be addressed if Europe is to move forward and I believe that the coming months will see that debt properly addressed.

This addressing of the debt legacy is the obvious next step in the process, as Europe acknowledges the mistakes of the past, decides on the structures necessary to ensure that there is no repeat of the mistakes and puts those structures in place, and then turns its attention to dealing with the problems already created and coming up with a solution that is both pragmatic and practicable.

The passing of this Bill represents the passing of another phase in terms of dealing with the economic crash of recent years and in some respects it now behoves all of us to leave behind recriminations about the various reasons for the economic mess that this Government inherited and start looking to the future and focus our efforts on the first task which faces us, that of securing for Ireland a deal in respect of the banking debt incurred to date.

Looking to the future, I noted that yesterday Minister Noonan stated that a statement of intent from the ECB in relation to the Anglo Irish Bank promissory notes would help him to frame December’s budget and his observation that the political timeline for a deal is now March of next year, when the next tranche of promissory notes fall due.

Last June, heads of government within the Eurozone agreed in principle to allow the ESM to recapitalise Irish banks in relation to legacy debt and the full attention of this Government must now focus on this, supporting the ongoing efforts of Minister Noonan and his officials as he seeks to secure details of such a deal as early as possible.

As we face into the framing of what is likely to be one of, if not the most difficult budget in the history of the state, this Government deserves to have to hand crucial information in relation to the country’s finances next year and a statement of intent from the ECB in relation to the likely parameters of such a deal would greatly aid Minister Noonan in determining the extent of the cuts that will have to be made.

Cuts that prove unnecessary will only damage the economy further, creating unnecessary fears among the general public and further denting economic confidence. Restoring some measure of confidence to the Irish economy will be a key task of 2013 and this is why this statement of intent from the ECB is so crucial at the present juncture.

The Fiscal Responsibility Bill represents Ireland signing up to a level of fiscal responsibility that will go a long way towards ensuring much greater equanimity in the economy of the European Union and I would hope that the very determined efforts of the Irish people to date to reduce and eliminate the budget deficit will be supported in every way possible by our colleagues in Europe, including the issuing of a statement of intent in relation to next year’s deal on Anglo promissory notes.