Council Opinion of 12 February 2001 on the 2000 update of Ireland's stability programme, 2001-2003
Date: 2001-02-12
Institutions: Council of the European Union
Subjects: Ireland, coordination of EMU policies, economic convergence

9.3.2001

EN

Official Journal of the European Communities

C 77/7

However, the Council notes that in the initial years of the
programme the deficit reduction relies heavily on revenue
side measures. As a consequence,
the already high tax
burden in Austria rises further in 2001, thereby more than
the income tax reform 2000. The
offsetting the effects of
Council,
to
the Austrian Government
consider measures which permit a significant decline in the
tax burden,
especially on labour, while preserving the
budgetary adjustment path.

therefore,

invites

those

strictly

envisaged

in
contingent

including
be made

reductions,
should

the
revenue
programme,
on
compensatory expenditure cuts. In light of the medium- and
longer-term challenges to public finances, due not
to
population ageing, and the need to render government
finances more conducive to investment and growth the
Council
to be
considers
continued with determination.

adjustment needs

fiscal

least

that

The Council considers that, to achieve a balanced budget by
2002, a strict budgetary implementation at all
levels of
government is crucial. This seems essential in view of uncer-
tainties regarding the savings estimates of the public adminis-
tration and pension reforms. At the level of the Bundesl(cid:228)nder
the expenditure cuts necessary to achieve the surpluses
required by the national stability pact largely remain to be
defined.

The Council acknowledges that, by 2003, more than half of the
total envisaged consolidation originates
from expenditure
savings. This requires that achievements in budgetary consoli-
dation are locked in and budgetary discipline is maintained in
the years 2003 and beyond. Any additional spending or further

the Council encourages

The Council acknowledges ongoing structural reforms of the
Austrian economy in line with the broad economic policy
guidelines. The recent reform of early retirement is particularly
welcome. However,
the Austrian
Government to continue its reform efforts in order to better
achieve and safeguard sustainable government finances in the
medium and longer term, namely in the pension system and
the health care sector. The Council invites the authorities to
provide more information on this issue in the next update of
the programme. The Council also encourages the Austrian
Government
to continue determinedly with the reforms of
product and capital markets, with a view to enhancing
risk capital and
competition,
improving
corporate
governance.

fostering the provision of
entrepreneurial

dynamism and

COUNCIL OPINION

of 12 February 2001

on the 2000 update of Ireland’s stability programme, 2001-2003

(2001/C 77/07)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European
Community,

Having regard to Council Regulation (EC) No 1466/97 of 7 July
1997 on the strengthening of the surveillance of budgetary
positions and the surveillance and coordination of economic
policies (1), and in particular Article 5(3) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

the 2000 update. Employment growth in 2000 is estimated at
4,5 %, with the unemployment rate declining further to 4,1 %
on average.
Inflationary pressures have intensified. Average
HICP inflation rose to 5,3 % in 2000. While this upsurge in
price inflation is partly due to external and temporary factors,
which are expected to fall gradually out of the consumer price
index, domestically generated inflation has increased too, house
price inflation remains very high and wages are rising rapidly.

As a result of strong economic growth, the projections in the
1999 update of the stability programme for the improvement
in the budgetary situation were exceeded by a large margin.
The Council welcomes the fact that the general government
balance for 2000 remains in substantial surplus, estimated to
be around 4,7 % of GDP, and that another sharp reduction in
the general government debt ratio was achieved.

On 12 February 2001 the Council examined the 2000 update
of
Ireland’s stability programme, which covers the period
2001-2003.

The Council notes that the Irish economy continues to grow
rapidly in 2000, with real GDP growth of 10,7 % expected in

(1) OJ L 209, 2.8.1997, p. 1.

Projections for the period 2001 to 2003 show an average
surplus ratio of 4,2 %, with the debt ratio declining further
to less than one quarter of GDP by 2003. The Council
welcomes the fact that, as in the original programme and its
1999 update, Ireland fully and comfortably fulfils the stability
and growth pact obligations throughout the period covered.
The projected general government surplus is clearly sufficient
in each year to provide a safety margin against breaching the
3 % of GDP reference value in the event of normal cyclical
fluctuations.

C 77/8

EN

Official Journal of the European Communities

9.3.2001

The macroeconomic scenario underlying these projections
assumes a gentle decline in real GDP growth and in inflation
over the period. The positive output gap, after an estimated
4,5 % of trend GDP in 2000, is expected to peak in 2001 at
5,4 % and to decline gradually thereafter. In this context, the
Council considers that the stimulatory nature of the budget for
2001 poses a considerable risk to the benign outlook in terms
of growth and inflation portrayed in the 2000 update. The
the main measures of
Council considers that
this budget
tax cuts and substantial
which are
increases in current and capital expenditure is pro-cyclical.
The Council finds that it will give a boost to demand of at
least 0,5 % of GDP and that its possible supply effects are likely
to be small in the short term, thereby aggravating overheating
and inflationary pressures and widening the positive output
gap.

indirect and direct

In particular, the strategy of inducing labour force increases
through an alleviation of the direct tax burden, which was
recommended in the 2000 broad economic policy guidelines
(BEPG) with respect to the labour market, may have become
less effective than in the past because it took place in the
and the
context of
an expansionary budgetary policy,
the labour market could well hamper further
tightness of
attempts at encouraging wage moderation with direct
tax
cuts. Further, while indirect tax cuts have a once-and-for-all
effect on the price level, they probably have no lasting effects
on the rate of inflation but clearly further stimulate demand.

Given that the monetary policy is now set for the euro area as
a whole and no longer available as an instrument at national
level, other policies, including budgetary policies, must be used
more actively. Against this background, the Council finds that
the planned contribution of fiscal policy to the macroeconomic
policy mix in Ireland is inappropriate. The Council recalls that
it has repeatedly urged the Irish authorities, most recently in its
the economic policies, to ensure
2000 broad guidelines of
economic stability by means of
fiscal policy. The Council
regrets that this advice was not reflected in the budget for
2001, despite developments in the course of 2000 indicating
an increasing extent of overheating. The Council considers that
Irish fiscal policy in 2001 is not consistent with the broad
guidelines of
regards budgetary
policy. The Council has therefore decided, together with this
Opinion, to make a recommendation under Article 99(4) of the
Treaty establishing the European Community with a view to
ending this inconsistency.

the economic policies as

The Council welcomes the fact that the 2000 update addresses
the issue of structural reform. In particular, the Council notes
with satisfaction the progress made in the area of long-term
sustainability of
the public finances with the creation of a
National Pensions Reserve Fund, which at end-2000 already
amounts to about 6,3 % of GDP. The Council also welcomes
continued efforts to enhance the quality of public finances
through reform of
the tax/benefit system and an increased
focus on capital expenditure in response to Ireland’s infra-
structural needs.