Monday 5 December 2016

Fiscal rules don't belong in Constitution says advisory council report

Published 26/01/2012 | 05:00

Budget policy

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THE independent council that advises the Government on budgetary issues has come out against the idea of putting fiscal rules in the Constitution.

The advice will strengthen the Government's hand in arguing against a constitutional basis for the new EU "fiscal union", as sought by Germany in particular, and help it avoid the need for a referendum.

The Fiscal Advisory Council was established last June. Planned legislation will make it an official body with an input into budgetary policy. This is part of the agreement with the EU/ECB/IMF 'troika'.

In a new report, the council says Budget rules should be given legal force, but not constitutional status.

However, it recommends strengthening the proposed rules and their enforcement.

It says each new government should set out a fiscal statement with explicit five-year targets for the ratio of debt to annual output (GDP).

Assessment

The government should provide a formal annual report to the Oireachtas on its fiscal policy -- covering both future plans and past performance -- while the Fiscal Council should also provide a formal annual assessment of the Government's performance and plans.

The rules drawn up last year by the Department of Finance should be strengthened, with taxation to finance extra spending clearly coming from stable sources, rather than volatile ones like property transactions.

"Consideration could be given to some form of 'debt brake'. Such a mechanism would allow for some necessary flexibility in the face of shocks, but would also put a brake on how far the debt ratio can drift from the Government's target path," it says.

The report says the proposed EU treaty may narrow the degrees of freedom available to the Government in the design of Ireland's fiscal rules.

But its analysis suggests that the Department of Finance's long-term targets may be more strict than the EU rules will require.

The plans envisage only tiny budget deficits for the next 20 years, once the current deficit is closed.

The council fears this does not give enough scope for dealing with economic downturns.

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