Download to 2016

Press Briefing
Fiscal Assessment Report,
June 2015
03 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
• 8th 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
Ireland Continues to make Progress as Economic Activity is
Recovering and Public Finances Improving
R EAL GDP AND R EAL GNP
(% C HANGE Y-Y)
U NEMPLOYMENT
(% T OTAL L ABOUR F ORCE )
15
16
14.6
14
10
% Change Y-Y
12
10
5
%
8
6.9
0
6
Real GDP
-5
9.6
4
4.7
Real GNP
2
-10
0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Sources: CSO; Department of Finance projections.
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Sources: CSO; Department of Finance projections.
Recovery is Gradually Broadening
C ONTRIBUTIONS TO R EAL GDP G ROWTH
(P ERCENTAGE P OINTS , Y-Y)
Percentage Points of Real GDP Growth (Y-Y)
15
10
5
0
-5
-10
-15
Domestic Demand (incl. Stocks)
Net Exports
-20
Real GDP
-25
2009
2010
Sources: CSO; internal calculations.
2011
2012
2013
2014
Deficit Continues to Fall
G ENERAL G OVERNMENT B ALANCE
(% OF GDP)
6
4
2
% GDP
0
1.6
0.7
0.3
-0.1
-2
-2.3
-4
-1.7
-0.9
-4.1
-5.8
-6
-7.0
-8
-8.6
Primary Balance
-8.0
Interest
-10
-11.6
-12
-11.1
General Government Balance
-14
2007
Source: CSO; SPU 2015
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
But Crisis Leaves Legacy of High Debt Levels
G ENERAL G OVERNMENT D EBT (GGD)
(% OF GDP, GNP AND H YBRID )
160
140
120
123.2
109.7
100
80
105.0
100.3 97.8
93.6
60
GGD (% GNP)
40
GGD (% Hybrid)
20
24.0
0
Sources: Department of Finance; IFAC internal calculations.
GGD (% GDP)
89.4
84.7
Uncertainty Around Growth Prospects
R EAL GDP FAN C HART B ASED
ON
SPU 2015
PROJECTIONS ( TO
Historical growth estimates *
2016)
Forecast Range
8
6
4
2
0
%
-2
-4
-6
CSO data
-8
2008
2009
2010
2011
2012
2013
2014
2015
2016
Sources: CSO; Department of Finance; and internal IFAC calculations.
* Distributions or 'fans' around historical growth estimates are based on previous revisions to real GDP data. Both forecast errors and revisions are based on 1999-05
sample.
Deficit Sensitive to Growth Shocks
G ENERAL G OVERNMENT B ALANCE PATHS
(% OF GDP)
General Government Balance, % of GDP
6
4
2
+1.5
0
+1
+0.5
-2
Base
-4
-0.5
-1
-6
-1.5
-8
-10
2012
2013
2014
2015
2016
2017
2018
2019
2020
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
1.6
1.4
1.2
1.0
0.8
0.6
0.4
Change in structural balance
0.2
Adjustment path condition
0.0
2015
2016
2017
2018
2019
2020
Annual real change in adjusted GG expenditure
Change in Structural Balance, % of GDP
COMPLIANCE WITH STRUCTURAL BALANCE
COMPLIANCE WITH EXPENDITURE BENCHMARK (EB)
A NNUAL REAL GROWTH IN THE E XPENDITURE
A GGREGATE
0.4%
0.2%
0.0%
-0.2%
-0.4%
-0.6%
-0.8%
-1.0%
-1.2%
-1.4%
-1.6%
2014
Note: Medium-Term Budgetary Objective for Ireland is a structural balance.
This is planned to be achieved in 2019 and consequently the Adjustment
Path condition does not apply in 2020.
Source: SPU 2015, Department of Finance.
2015
2016
2017
2018
2019
SPU 2015
SPU 2015 (excluding buoyancy effects)
Sources: Internal IFAC calculations based on SPU 2015 and Budget 2015.
2020
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
34
GOVERNMENT REVENUE AND PRIMARY EXPENDITURE
(% OF GDP)
45
SCENARIOS FOR GOVERNMENT EXPENDITURE
(% OF GDP)
30
40
28
35
26.7
26
24
% of GDP
% of GDP
32
30
23.8
28.9
Primary expenditure/GDP
26.7
Revenue/GDP
23.8
25
22
20
20
2014
2015
2016
2017
2018
2019
2020
Primary expenditure, % of GDP - SPU 2015
Primary expenditure, % of GDP - IFAC Scenario 1
Primary expenditure, % of GDP - IFAC Scenario 2
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