Budget 2016: Head of advisory group retracts criticisms

The chairman of the Irish Fiscal Advisory Council has pulled back from claims he made on Wednesday morning that Budget 2016 may break European fiscal rules.

Prof John McHale of NUI Galway issued a "clarification" statement on Wednesday afternoon several hours after he suggested RTÉ's Morning Ireland programme that the Government was obliged to cut the underlying structural deficit in the public finances by more than set out in the budget.

While the budget assumes a 0.8 per cent of GDP cut in the structural deficit, Prof McHale said on radio that a 1 per cent cut was required.

In his statement, however, he said the “actual required improvement” of 0.6 per cent of GDP had been set earlier this year based on the projections then in place.

“The information that the required improvement was fixed earlier in the year has not been published and was not made available to the council,” the statement said.

The development follows pressure on the Government over Prof McHale’s intervention on radio, in which he said the 2016 plan was “too expansionary”.

The Department of Finance welcomed the clarification, noting in a statement that country-specific recommendations issued for Ireland by the EU authorities should "achieve a fiscal adjustment of 0.6 per cent of GDP towards the medium-term objective in 2016".

The department went on to say the budget was formulated on that basis.

The Fiscal Advisory Council said Prof McHale “regrets any confusion caused by reference to the possible requirement to improve the structural balance by greater than 1 per cent of GDP in 2016”.

It added: “ The council has confirmed with the European Commission that the required improvement under the rules of the stability and growth pact] is 0.6 per cent of GDP in 2016, as stated in the Budget 2016 documentation.”

Prof McHale’s comments this morning, that the budget for next year may contravene EU fiscal rules, had been rejected by senior Ministers.

Minister for Finance Michael Noonan had responded to the criticisms by insisting Prof McHale was incorrect.

“When we were putting the budget together we were in contact with the European Commission. They have assured us that it does correspond, both the expenditure benchmark and the structural reduction that is necessary,” Mr Noonan said.

Normally, the Fiscal Advisory Council spends several weeks assessing the budget before commenting.

However, in a surprise early intervention,Prof McHale said on Wednesday it was concerned at the increase in supplementary spending.

Prof McHale said the Government’s plan was to use the rise in tax receipts to deal with some spending pressures and also use part of the extra revenues to reduce the deficit. “The right approach really would have been to use the revenue windfall to bring the deficit down further,” he argued.

The council had previously endorsed the outline of Budget 2016, which included a €1.5 billion budget expansion.

Prof McHale said on Wednesdady morning the council had not expected the Government to introduce an additional €1.5 million via supplementary spending, which pushed the Government’s overall package for 2016 out to €3 billion.

He had also queried whether the budget would meet the terms of fiscal rules that require EU government to stay inside certain parameters while the economy is growing.

“The spending this year looks like it’s going to be €1.7 billion higher than was budgeted and about €1.4 billion of that is current spending. We did anticipate that there would be overruns in health, but we didn’t see that other spending coming,” he said.