Prepared by David J. Ordoobadi.
Under the Pact, a deficit ratio in excess of 3 percent of GDP is only automatically justifiable when output Ms by 2 percent in one year. A case can also be made if output declines by at least 0.75 percent.
If, for example, real output growth were to decline by 2 percentage points from trend in 1998-99 (bringing Irish growth in those years to European wide trend growth of 2½ percent), the 1999 general government deficit ratio—notwithstanding the 0.6 percent of GDP contingency amount incorporated in the baseline outlook—would threaten to exceed the Maastricht reference value of 3 percent of GDP. However, the decline in the rate of growth that precipitated this deficit would not be considered as exceptional under the EU Growth and Stability Pact.
Real current expenditure growth during 1990-94 of 5½ percent annually prompted the adoption by the government of ceilings on the growth of current non-interest spending (6 percent in nominal terms in 1995 and 2 percent on average in real terms during 1996-97). Despite some slippage, these ceilings dampened the pace of expenditure growth in 1995 and 1996 and in the 1997 budget.
Private sector earnings are expected to increase by about 4 percent during 1998-99, taking into account the provisions of P2000, productivity improvements, and drift.
Taking into account increments, the carryover effects and outstanding claims of the previous centralized wage pact on the 1997 budget, and the terms of P2000 in 1998-99.
The introduction of the new 1995 ESA accounting conventions in 1999 will add approximately 7 percentage points to the debt ratio. This is a technical change and will not affect the downward trend in the ratio.