Fiscal Responsibility

Table of Contents

General

The Fiscal Responsibility Act makes provision for securing that the rules in Article 3 of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union take effect as part of the law of the State as required by that Treaty.

The purpose of the Fiscal Responsibility Act 2012 is

to make provision for securing that the rules in Article 3 of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union take effect in the law of the State in accordance with paragraph 2 of that Article and that the rule in Article 4 of that Treaty takes effect in the State;
to make provision in accordance with Article 3 of that Treaty in relation to a medium-term budgetary objective and a correction mechanism;
to establish a body to be known as Comhairle Chomhairleach Bhuiséadach na hÉireann or, in the English language, the Irish Fiscal Advisory Council and provide for its functions.

Regulations to be made on the basis of common principles referred to in Article 3(2) of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union may only be made by the Minister for Finance if a draft of the regulations has been approved by a resolution of Dáil Eireann.

Duty of Government

The Governments to ensure that the budgetary rule and the debt rule are complied with. The section also provides that the official Spring and Autumn macroeconomic and budgetary forecasts prepared by the Department of Finance for the purposes of fiscal planning must include the data required to assess whether the Government is complying with the budgetary rule.

Budgetary rule

One of the two conditions of the budgetary rule must be satisfied:

the budgetary position of general government is in balance or in surplus and that this condition will be satisfied if
the annual structural balance of the general government is at the medium-term budgetary objective; or
the annual structural balance of the general government is complying with a set adjustment path towards the medium- term budgetary objective.

In both conditions, a deviation from the medium-term budgetary objective or from the adjustment path is permitted if it results from exceptional circumstances.

When the ratio of general government debt to GDP is above 60%, the ratio will be reduced in accordance with the relevant EU regulation under the Stability and Growth Pact.

Medium-term budgetary objective

The Act defines limits for the medium-term budgetary objective.

There is a correction mechanism that will be triggered if there is a significant deviation of the general government’s budgetary position from the medium-term budgetary objective or, if relevant, from the adjustment path towards the objective.

There is to be a Fiscal Council. The Fiscal Council is independent in the performance of its functions and lists the functions of the Fiscal Council.

Mechanism to Correct

If the Commission addresses a warning to the State under the surveillance and coordination regulation or if the government consider there has been a failure to comply with the budgetary rule, which constitutes a significant deviation, the government shall within two months prepare and lay before the Dáil, a plan specifying what is required to be done to secure compliance with the budgetary rule.

The plan shall specify the period over which compliance with the budgetary rule is to be achieved. If that period is longer than a year, it shall specify annual targets to be met in moving toward such compliance, specifying the size and nature of the revenue and expenditure measures that are necessary to be taken to ensure such compliance and outlining how revenue and expenditure measures that are to be taken will relate to the different subsectors of the general government.

The provision made by the plan is to be consistent with the rules of the Stability and Growth Pact and any recommendation made to the `State under the Stability and Growth Pact in relation to the period over which compliance with the budgetary rule is to be achieved and decisive measures to be taken to secure such compliance and the current stability program.

Exceptional Circumstances

If the government considers that exceptional circumstances have arisen during the period specified in the plan, the things specified in the plan are no longer required to be done. When the government considers that the exceptional circumstances cease to exist, it shall unless there is no longer a failure, such as is mentioned above, within two months prepare and lay before Dáil Éireann a new plan.

If the government consider that a failure to comply with the budgetary rule is likely to occur, the government may within two months prepare and lay a statement before Dáil Éireann outlining the steps the government intends to take to avoid such a failure.

Exceptional circumstances are a period during which an unusual event outside the control of the State has a major impact on the financial position of the general government or a period of severe economic downturn within the meaning of the Stability and Growth Pact.

Key Definitions

The annual structural balance of the general government in a year is the general government deficit or general government surplus cyclically adjusted , net of one off and temporary measures expressed as a percentage of Gross Domestic Product. Cyclically adjusted means adjusted to take account of effects estimated to be due to the operation of the economic cycle.

General government accounts is interpreted in accordance with the European system of accounts. General government debt is accounted for in accordance with EU regulations, as is general government deficit and general government surplus.

The medium-term budgetary objective means the medium-term budgetary objective required by the surveillance and coordination regulation.

Advisory Council

The Irish Fiscal Advisory Council is established. That is an independent body and is independent in the performance of its functions. It is to monitor and at least annually provide an assessment of whether any obligations in the legislation or things specified in the plan are being complied with.

An assessment is to include an assessment of whether in the opinion of the Council exceptional circumstances exist or have ceased to exist, if there is a failure of compliance with the budgetary rule and during a period specified, the plan, whether progress towards securing compliance is being made in accordance with the plan.

The Fiscal Council is to provide an assessment of the official forecasts. In relation to each budget and stability program, it is to provide an assessment of whether the fiscal stance for the years concerned is in the opinion of the Council conducive to prudent economic and budgetary management including by reference to the provisions of the Stability and Growth Pact.

The Fiscal Council will as soon as practicable, after completing an assessment, give a copy to the Minister and publish the same within 10 days. If the government does not accept an assessment of the Council in relation to any of the matters, the Minister shall within two months prepare and lay before Dáil Éireann, a statement of the reasons for not accepting it.

Organisaion of Council

The Fiscal Council consists of five members. The members of the Council are appointed by the Minister. In appointing members, the Minister is to have regard to the desirability of their having competence and experience in domestic and international macroeconomic and fiscal matters and to the extent practicable ensure an appropriate balance between men and women.

The term of office of the Fiscal Council is four years. A person may not be appointed for more than two consecutive terms of office.

The general provisions applicable to independent state bodies apply to the Council. It must keep accounts and present them to the Minister. Comptroller and Auditor General is to report on accounts of the Fiscal Council. The Chairperson of the Council may be required to appear before Dáil Éireann in relation to its accounts.

The number of staff and their terms and conditions may be determined by the Fiscal Council with the consent of the Minister following consultation with the Minister for Public Expenditure and Reform.

Staff shall be seconded from their duties and not be paid by the Council if they are nominated as candidates for election or elected to the Houses of the Oireachtas or the European Parliament or are nominated as a member of Seanad Eireann or become a member of a local authority. Members in the same circumstances shall cease to be members.

This paragraph prohibits the disclosure of confidential information without the consent of the Council or the Minister if the information was supplied by the Minister.

Operation of Council

The Fiscal Council shall be funded from the Central Fund. The paragraph sets a ceiling of €800,000 wh shall be adjusted in line with the annual percentage change in the Harmonised Index of Consumer Prices.

The Fiscal Council will be required to keep proper accounts and it will be audited by the Comptroller and Auditor General.

The chairperson of the Fiscal Council shall, when requested to do so in writing, appear before the Committee of Public Accounts and give evidence on the accounts and operations of the Council. The chairperson may also be summoned by a Committee of the Oireachtas to account for the performance of its functions under the Act.

The Fiscal Council will be subject to the Freedom of Information Act 1997.The Fiscal Council is required to produce an annual report of its activities. The Minister shall lay the annual report before each House of the Oireachtas.The Fiscal Council will have a seal.