EC proposal to allow increase in budget spending

Minster for Finance Michael Noonan has said his Department accepts a European Commission proposal that will allow an increase in spending in next years budget.

The proposal still requires approval from other Euro area governments, but Mr Noonan said he is confident he will get agreement to bring in planned budget changes.

Earlier this week the Fiscal Advisory Council backed the Government's case, saying it would support stepping away from a strict application of spending rules for next years budget.

The stance was also supported by the International Monetary Fund in its annual review of the Irish economy published last week.

According to IFAC estimates, the existing way of calculating the Expenditure Benchmark - the level of allowable increase in Government spending - would mean there could be no increase in spending, but an alternative method of applying the rule would give the Government an extra €700 million in extra spending.

The technical changes proposed by the Commission means that Ireland's planned spending increase will still be within the terms of EU spending rules.  

These rules form part of Irish domestic law - the Fiscal Responsibility Act 2012.  

The aim of the rules is to ensure government spending increases are sustainably financed.  

Spending is supposed to increase at a lower rate than the growth in potential GDP.  

If, as is the case with Ireland, there is a structural deficit, then part of the possible spending increase must be used to reduce the deficit by a pre-agreed amount (0.5% of GDP for Ireland) before any increase in day-to-day Government spending or tax cuts can be made in a budget.

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