Mr. Derek Moran:

I thank the Chairman for giving me the opportunity to address the committee. With me are Mr. John McCarthy, our chief economist; Mr. Gary Tobin, head of banking; Ms Mary McSharry, head of corporate affairs; and Mr. Fiachra Quinlan from our finance unit. Our colleague, Mr. William Beausang, from the Department of Public Expenditure and Reform was here.

The agenda covers chapters 1, 2, 5 and 24 of the 2016 report of the Comptroller and Auditor General on the accounts of public services; the appropriation accounts for 2016 - Vote 7 - and the 2016 finance accounts. The 2016 gross budget for the Department was €40.994 million, or €39.6 million net of appropriations in aid, including a capital carryover from 2015 of €115,000.

There were three key categories of operational budget, namely, pay bill, at €18.5 million; administration, at €5.9 million; and programme consultancies, at €6.1 million. The gross spend for the year was €31.2 million which was €9.8 million or 23.8% under the budget estimate of €40.994 million. With higher appropriations-in-aid, this left a €10.4 million surrender figure at the end of the year. This surplus arose for a number of reasons. There was an underspend of approximately €4.6 million on programme expenditure related costs arising from the completion of some consultancy work using in-house resources and lower costs in the defence of certain legal cases and their timing in court. There were also savings of €2.1 million in relation to the fuel grants scheme. Recruitment did not progress at the pace anticipated during 2016, resulting in a pay bill underspend of €1.9 million. This situation was addressed in 2017, which saw the pay bill underspend reduced to about €600,000. There were further savings of €1.1 million on non-pay administration expenses. Certain information technology and capital projects did not take place during the year, accounting for most of this saving. The Department also recouped an additional €900,000 in respect of costs associated with the stabilisation of the banking sector.

The fuel grant constituted a new service in the context of the finance Vote in 2016. A sum of €10 million was provided for the new fuel grant under the disabled drivers and passengers (tax concessions) scheme to replace the excise repayment on the fuel element of the scheme. Spending under the scheme in 2017 amounted to €9.6 million, which was much more in line with the original estimates.

As regards the Exchequer financial outturn for 2016, I draw the committee's attention to the following key points. Tax revenues for 2016, at €47.8 billion, were up by €2.3 billion or 5% year on year and €600 million or 1.4% above profile. In relation to income tax, the largest tax head, the performance in 2016 was solid, with receipts finishing the year 0.9% or €174 million above profile. This represented an annual increase of 4.4% or €810 million. Corporation tax receipts in 2016 of €7.4 billion were €700 million above the budget 2016 forecast. The major consumption tax heading, VAT, was up 4% or €476 million in annual terms in 2016, at €12.4 billion, albeit some 3.4% or €439 million below expectations. This underperformance can be partially attributed to stronger than expected repayments and muted price pressures.

On the expenditure side, total expenditure, at €68.065 billion, was down €2.393 billion or 3.4%. This was due to a reduction year on year in short-term loans to the Social Insurance Fund for cashflow purposes. When the impact of loans to the Social Insurance Fund are removed, gross expenditure for 2016 amounted to €66.695 billion. This is a year on year increase of €602 million or 0.9%, driven by an increase in gross voted expenditure of €1.311 billion or 2.4%, partially offset by a reduction in debt servicing costs of €269 million and non-voted expenditure of €503 million.

The general Government debt for 2016 was €200.6 billion. General Government debt as a percentage of GDP fell to 73% in 2016 from a peak of 120% in 2012. The decline in the general Government debt to GDP ratio since 2013 has been influenced by the growth in GDP, rather than the reduction in nominal debt. This downward trend is projected to continue, with a debt to GDP ratio of 60%, the target set by the Stability and Growth Pact, forecast in the early part of the next decade.

As members are aware, the Irish Fiscal Advisory Council was established under the Fiscal Responsibility Act 2012 to provide independent assessments of the Government's budgetary plans and projections and inform public discussion of economic and fiscal matters. There is a joint memorandum of understanding between the council and the Department underpinning the endorsement process of the macroeconomic forecasts prepared by the Department on which the budget and stability programme updates are based.

The robust pace of recovery in the economy continued in 2017, with GDP increasing by 7.8%. The increase in economic activity is broadly based and the economic fundamentals are strong. Ireland has been one of the fastest growing economies in the European Union in the past four years. The recovery was most clearly evident in 2017 in the labour market, with approximately 2.2 million people in employment. This reflects the creation of 318,000 additional jobs since the low point in 2011. Strong employment gains have driven a substantial turnaround in unemployment which has fallen from a peak of more than 16% in 2012 to slightly more than 6% in March 2018. As set out in the stability programme update yesterday, it is anticipated that employment levels will get back to pre-crisis levels in the first half of this year.

Both domestic demand and exports are making positive contributions to growth. Key economic indicators point to continued solid growth this year. The Department is forecasting growth of 5.6% this year and 4% next year. However, the United Kingdom's decision to leave the European Union will have a substantial impact on the economy. At this stage, the most likely scenario involves a transition period for 2019 and 2020.

In December 2017 Ireland repaid its remaining programme related loans to the International Monetary Fund, together with the bilateral loans from Sweden and Denmark, early and in full. Ireland has maintained its A grade rating with each of the three major credit rating agencies.

A key focus for the Department in the past year has been the part disposal of the State's investment in Allied Irish Banks. The successful initial public offering, IPO, of AIB in June 2017 was the second biggest in the world last year, raising €3.4 billion for the taxpayer. This has created a strong platform for the State to recover over time all of the money it has invested in AIB.

The National Asset Management Agency, NAMA, is also making continued progress, with 100% of senior debt now repaid, while the Department is working towards the introduction of the new Home Building Finance Ireland, HBFI, which will help to increase the supply of funding for residential developments.

Brexit is a serious challenge for the economy. As members are aware, the Government has increased its strategic oversight of Brexit by assigning the Tánaiste and Minister for Foreign Affairs and Trade with special responsibility for co-ordinating the whole-of-government response. Brexit issues are mainstreamed into the Department's work in all areas, including economic analysis, financial services and taxation.

Intensive negotiations between the United Kingdom and the European Union on the phase one issues culminated on 8 December 2017 when an agreement was reached on all three exit issues, reflected in an EU-UK joint progress report. Based on the report, the European Council, on 15 December 2017, concluded that "sufficient progress" on all phase one issues had been achieved and negotiations could move to the second phase. This work is progressing.

I take the opportunity to express my appreciation to the staff at the Department for their ongoing hard work. It is through their efforts and dedication that we deliver on our objectives. In turn, we try to support our staff by providing the training and skills necessary for the job. Our efforts in that regard were acknowledged last year when the Department was awarded a national training award as best learning and development organisation by the Irish Institute of Training and Development. We have been short-listed again for 2018.

I thank the Chairman and members for their attention and would welcome questions.