Tuesday, 23 May 2000
Dáil Eireann Debate
36. Mr. D. Carey asked the Minister for Finance the reason his estimate of the year on year increase in tax receipts was 8.6% on budget day while the actual return for the first quarter shows an increase of 16.7%; and if he will make a statement on the matter. [14212/00]
Mr. McCreevy: The year on year increase in taxes for 2000 over 1999 projected on budget day, 1 December 1999, was 9.6%. This was based on a projected outturn for tax receipts of £18,384 million in 1999. The actual 1999 outturn was £18,559 million which had the effect of reducing the 2000 budget day tax forecast increase from 9.6% to 8.6%.
The Exchequer returns showed that tax receipts by end March were 16.7% higher than in  the same period last year. By end April the increase in tax receipts over the same period last year had fallen to 14.7%. Deputies will be aware that these figures do not reflect the impact of the personal tax package which took effect from 6 April. That will begin to be reflected in the receipts from May onwards, and will tend to further reduce the rate of increase over the remainder of the year.
The rate of increase in taxes is mainly determined by the rate of economic growth in the economy. The budget day projection for tax receipts was based on a forecast of GDP growth of 7.4% in 2000 and it now seems likely that GDP growth will be even stronger than expected on budget day. The Department is currently reviewing its forecasts and its updated assessment will be published in the Economic Review and Outlook in July. At this stage, it appears likely that tax revenue for the year as a whole could exceed the budget target by around £500 million.
Mr. McDowell: Would the Minister agree that what is wrong here is not just that the estimate is wrong but that the method is wrong, and that his Department has been aware of this for some time but yet does not seem to have changed the method? Some time ago I had a lengthy conversation with an official in his Department who spoke to me with great expertise about the issue. I understood the Department is reconsidering how it does this work, but yet it does not seem to have made a decision on the matter.
Mr. McCreevy: Any surplus over and above what I anticipated on budget day will be used to further reduce the national debt. Perhaps some extra moneys could be put aside for the pension fund proposal. Any surplus will be used for either of those purposes.
Deputy McDowell raised a good point, one which was raised not only by him and others but inside the Government. Two years ago we analysed this matter and revised the method of doing this. I will get my Department to send the Deputy a copy of our proposals. There was a new methodology used in the past two budgets. The first time we used this methodology, most commentators said after the budget that whatever about previous forecasts, this was really at the outer limit and it might be a little dangerous because it might have been understated.
There is an interesting international phenomenon about this. In times of economic upsurge every country we examined understated the tax revenues and, peculiarly enough, in times of economic downturn they all overstated the forecast. Therefore, this is not a phenomenon which is unique to Ireland.
We have revised the methodology and I can  give the Deputy the document regarding the methodology involved. The first year we did it there was considerable angst that we might be going a little too far.
If one thinks that is a little unusual in Ireland, in the UK the forecast for overall tax revenue on budget day in 1999 was £322 billion for the 1999-2000 tax year. A few months before the end of the year they were proposing an overall exchequer deficit – they do not use those phrases there, but the effect is the same. The overall surplus for the year turned out to be £12 billion. In case people might think that the situation is a little unusual here, we have never been that far out compared to the UK. I point that out for the benefit not only of the Opposition but perhaps of some of my colleagues also.
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