The European Commission has proposed to simplify current rules and allow for greater fiscal flexibility for Member States.
Prior to March 2020, Ireland was required to maintain a budget deficit of no more than 3% of GDP and have a Government debt-to-GDP ratio not exceeding 60%. These fiscal rules have been suspended since the beginning of the COVID-19 global pandemic and remain suspended due to the war in Ukraine and the economic uncertainty this has caused.
Under the Commission’s proposals, the structural elements of the rules have been removed. The economic sanctions for non-compliance with the rules are also being reduced to try ensure greater ownership of the rules at a national level. In addition, national Fiscal Councils will play a greater role in assessing the underlying assumptions of economic plans submitted by Member States. In Ireland’s case, this would mean the Irish Fiscal Advisory Council would carry out the necessary assessment.
As part of the common EU framework, the European Commission will propose a ‘reference fiscal adjustment path’ covering four years to ensure Member States have debt on a downward trajectory and a deficit of no more than 3% of GDP. Member States would then submit their medium-term fiscal plans. The European Commission has launched a process to review the fiscal rules, which sets out debt and deficit rules for Member States of the European Union, and propose amendments.
These changes are subject to approval, and as the European Commission intends to reach agreement with Member States on the revised Fiscal Rules for 2024 budgets, this would mean agreement being reached no later than October 2023. It is not yet clear if Ireland would have to domestically legislate for these changes.
Further information is available from the Parliamentary Budget Office here.