The Department of Finance today (Thursday) published two papers which aim to enhance and develop the Department's fiscal sustainability framework. The papers expand fiscal analysis to the entire public sector while monitoring potential liabilities of Government recorded off-balance sheet. The first paper, ‘Ireland’s Public Sector Balance Sheet’ is the first of its kind for the State; by publishing this paper Ireland joins a select group of countries who have undertaken such analysis. The second paper, ‘Contingent Liabilities – an overview’, provides a detailed insight into contingent and other off-balance sheet liabilities which have the potential to result in future fiscal costs for the Government. This analysis includes some of the measures associated with the Government’s wider response to the Covid-19 pandemic.
Ireland’s Public Sector Balance Sheet (PSBS)
The PSBS provides the most comprehensive picture of public wealth to-date, accounting entirely for what the State owns and owes by bringing together all the accumulated assets and liabilities which the Government controls. As a result it offers a broader picture of the public balance sheet beyond deficits and debt. Standard fiscal analysis tends to concentrate on financial flows such as revenue, expenditure and borrowing - with the exception of debt, the main stock measure to enter into the public discourse. By limiting the analysis to flows a gap can exist in terms of asset creation or disposal in the absence of a balance sheet approach. This paper attempts to address this gap.
The paper highlights that Ireland’s public sector balance sheet (PSBS) - having entered the Global Financial Crisis (GFC) from a position of strength - was severely impacted by the crisis. General government deficits accounted for the deterioration in net worth, while public corporations emerged largely unscathed from the crisis. The risk to the PSBS weighed more heavily towards private corporations and as a consequence, via government financial intervention, an expansion of the public sector ensued.
Expanding fiscal reporting and analysis to include the wider public sector allows policy makers to use the public sector balance sheet to evaluate the fiscal position under various future fiscal paths. This paper highlights that a policy response will be vital to address demographic shifts, while acting early can significantly assist in building fiscal buffers.
Contingent Liabilities
The second paper, Contingent Liabilities – an overview, provides an insight into contingent and other off-balance sheet liabilities, which have the potential to result in future fiscal costs for the Government. While the prominence of contingent liabilities has fallen sharply since 2013, the monitoring and reporting of such liabilities, including for example Government guarantee schemes, is a vital input for a comprehensive budgetary framework. The paper also explores the application of contingent liabilities as part of the Government’s wider response to the Covid-19 pandemic.
Following the recovery from the GFC, the level of contingent liabilities utilised in Ireland drastically reduced; at this point Ireland now compares favourably by EU standards, trending at or below the EU norm. These trends signal a reduction in the risks to the public sector balance sheet. The level of contingent liabilities in Ireland and across the globe is likely to increase in the aftermath of the Covid-19 pandemic. On this basis, the continued reporting and monitoring of these forms of liabilities is crucial from a sustainability and policy perspective. To facilitate this the Department will continue to publish data on contingent liabilities on an annual basis.
Commenting on the publication of both papers, the Minister for Finance, Paschal Donohoe T.D said: ‘Today’s papers highlight the continued research undertaken in the Department to enhance and develop our fiscal sustainability framework. By expanding fiscal analysis to the entire public sector, while monitoring liabilities which are recorded off the Government balance sheet, we can develop a wider understanding of the issues facing the public finances while safeguarding against potential risks into the future’.
ENDS
Contact:
Deborah Sweeney, Special Advisor, Department of Finance — 086 858 6878
Aidan Murphy, Press Officer, Department of Finance – 085 886 6667