Commission budget rules to switch emphasis to government spending – Hayes
Ireland one of the only Member States that can currently afford real expenditure growth
Brian Hayes MEP today (Thursday) said that the European Commission is making attempts to switch the focus of its budgetary and fiscal rules on expenditure benchmarks and Ireland must be prepared for such a move.
“The government must prepare for the European Commission to take a stricter stance on government spending in the coming years. At the moment, the Commission has been mainly focused on ensuring that Member States get their budget deficits down towards balanced budgets. Not as much attention has been placed on government spending rules as long as governments were working towards reducing their deficits.
“Through my discussions with DG ECFIN, the Commission has made it clear that it is now preparing to turn its focus on how much governments spend in line with their potential GDP growth.
“Throughout the financial crisis and up to now the key focus from the Commission has been on the rules that the budget deficit must be below 3 percent and public debt must be below 60 percent of GDP.
“But now the Commission’s emphasis will begin to shift towards the limits placed on government spending, or ‘expenditure benchmarks’, as set out in EU fiscal rules. The expenditure benchmarks are established in line with a country’s potential GDP growth which is calculated over a ten-year period, including the growth rate of the previous five years, the current year and the following four years. 0
“For Ireland, the allowable expenditure growth was set in 2013 based on a 10-year average of potential GDP growth estimates from 2008 to 2017. However, the expenditure benchmark has been increasing as our budgetary position improves. But notably, under the fiscal rules, if Ireland breaches its expenditure benchmark it must match this by additional discretionary revenue measures.
“The enforcement of these expenditure rules are likely to become stricter. There is potential for new or amended legislation to bolster the Commission’s hand at enforcing government spending rules, yet discussions with Member States are still at a very early stage and there is likely to be major resistance to further legislation on budgetary rules.
“Ireland as a small open economy is very susceptible to shocks; this means that our budgetary position is subject to massive changes. We need to prepare properly for the future – no longer can we spend freely when times are good and tighten up when times get bad. We need to be able to put money aside when we have the budgetary capacity to help us in the bad times.
“According to Commission sources, Ireland is currently one of the only Member States that can afford real expenditure growth. But we need to have a good balance between our tax base and government spending. The government is on the right track but needs to be prepared for stricter enforcement of the spending rules in the years to come.”