The Minister for Finance, Mr. Michael Noonan T.D. has today (18th July 2012) published the Fiscal Responsibility Bill 2012. This Bill sets out the legislation required to implement the key provisions of Article 3 and Article 4 of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (“the Stability Treaty”). The Bill also provides for the establishment of the Irish Fiscal Advisory Council (IFAC) on a statutory basis.
Commenting on the publication, Minister Noonan stated:
“The Fiscal Responsibility Bill 2012 provides for the implementation of the fiscal rules set out in the Stability Treaty. These rules are sensible and prudent and represent a responsible approach to budgeting.
The Government is committed to commencing the passage of the Bill through the Houses of the Oireachtas when the Dáil returns in September. Following the passage of the Bill and its enactment, the Government will be in a position to formally ratify the Stability Treaty.”
Notes to Editors
Details of Bill
The purpose of the Bill is to provide for the implementation in national law of Articles 3 and 4 of the Treaty. The other articles of the Treaty are binding obligations under international law that do not require to be reflected in national law.
Article 3 of the Treaty requires provision in national law for the fiscal rules set out in that Article. These include:
A commitment by governments that the budgetary position of the general government shall be balanced or in surplus. This is the general policy approach which governments must take.
Provision for an automatic correction mechanism that will be triggered if there are significant deviations from the budgetary target or the adjustment path towards it
Provision is made for deviation from objectives in the case of exceptional circumstances.
Article 4 sets out the debt rule that is already a requirement under the revisions to the Stability and Growth Pact adopted in late 2011. Where a Member State’s General Government Debt to GDP ratio is in excess of 60%, the difference between the actual ratio and the 60% threshold must be reduced by an average of one twentieth per annum.
Differences between the General Scheme and the Fiscal Responsibility Bill 2012
Section 6 of the Fiscal Responsibility Bill 2012
Following the publication of the General Scheme of the Bill in April the European Commission adopted a communication on the 20th of June 2012 setting out the common principles for the deployment of the correction mechanism.
Accordingly, Section 6 of the Fiscal Responsibility Bill 2012 provides fully for the correction mechanism. The principles set out that if there is a significant deviation from the medium-term budgetary objective or from the agreed adjustment path towards it, the Government must lay a correction plan before the Dáil within two months. The plan must specify the deadline for the correction and the size and nature of the measures to be taken. Furthermore, the plan must be consistent with recommendations made under the Stability and Growth Pact on the correction in question and the current stability programme. This will ensure that correction will return the budgetary position to the target agreed before the deviation.
Irish Fiscal Advisory Council
The Treaty also requires that there is an independent institution at national level responsible for monitoring compliance with the rules in Article 3 of the Treaty.
Accordingly, this bill also provides for the establishment of the Irish Fiscal Advisory Council (IFAC) on a statutory basis and allocates this function to it. The Government established IFAC on a non-statutory basis in July 2011 and it has already published a number of reports, which can be found on its website www.fiscalcouncil.ie.
The common principles relating to the correction mechanism published by the European Commission also require that the independent institution at national level, the IFAC, provide public assessments of whether a significant deviation has occurred, if exceptional circumstances have begun, continue to exist or have ceased and if a correction is proceeding in accordance with the correction plan.
Accordingly, the functions of IFAC have been enlarged to encompass these requirements.
Finally, in keeping with the common principles, if the Government does not accept one of these assessments, it is required to explain its reasons publically
Link to Common Principles
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2012:0342:FIN:EN:PDF