Mr. John Hogan:

I thank the Chairman and members of the committee for affording me the opportunity to address the committee. I think that the Chairman identified some of the officers and officials who accompany me. We have Mr. John McCarthy, chief economist, Ms Emma Cunningham, head of tax, and Mr. Des Carville, head of the shareholding and financial advisory division. We also have Ms Scline Scott, head of corporate division, and Ms Laura Cunningham, our finance officer.

I will focus on the specific items on today’s agenda and keep my comments brief. The agenda covers the Appropriation Accounts 2020, Chapters 1 and 16 of the Comptroller and Auditor General’s Annual Report 2020, and the Finance Accounts. As the Chairman mentioned, the committee has a number of items to discuss with us, including the special liquidation of the Irish Bank Resolution Corporation.

Turning to Vote 7, the Estimate for the Department for 2020 was set at €39.9 million or €38.6 million net of appropriations-in-aid available. The gross outturn spend for the year was just under €36 million, €3.9 million or 9.7% under the available allocation. As a result, the Department surrendered just under €3.4 million to the Exchequer.

The end-year surplus arose for a number of reasons. There was an underspend of over €600,000 on consultancy and other services costs; around €800,000 of the capital budget was left unspent as a result of the public health restrictions in the construction sector; for similar reasons there was an underspend on travel and subsistence, which was very much linked to Covid-19; and finally, there was an underspend on the disabled drivers fuel grant scheme of €530,000. As members know, this scheme is demand-led and is difficult to predict with great certainty.

In terms of the Exchequer Financial Outturn for 2020, I draw the committee's attention to the following key points. Despite the pandemic, tax revenues held up well, falling by just €2.1 billion or 3.6% on 2019. The two key drivers of the better-than-expected performance were income tax and corporation tax. Income tax is the largest tax head, accounting for 40% of the overall tax revenues in 2020. Taxes in the year were €22.7 billion, only €200 million lower than 2019 despite the high number of people in need of support via the pandemic unemployment payment.

The strong performance of income taxes was the result of the progressivity of the income tax system, interposed with the sectoral nature of the employment shock. Unfortunately, those worst affected by the pandemic were predominately in lower paid employment areas. However, as lower paid workers are largely kept outside the income tax net, the impact on income tax receipts was less than could be expected given the overall level of joblessness.

Corporation tax also over-performed, mainly due to high levels of profitability in a number of key sectors. The volatility and unpredictability of corporation tax receipts pose a challenge to the continued stability in the public finances.

The Department currently estimates that the impact of international tax reform discussions under way will be in the region of €2 billion per annum relative to baseline. As the discussions at OECD and EU levels continue, the impact will be kept under close review and updated accordingly.

The more domestically focussed tax heads, namely VAT and excise, were heavily impacted by the pandemic, as consumer spending collapsed as a result of public health restrictions. VAT returns fell €2.7 billion on 2019 to €12.4 billion, while excise receipts for the year were just under €5.5 billion, €500 million lower than 2019.

On the expenditure side, total net voted expenditure was €67.8 billion, an increase of some €13.7 billion or 25% on 2019. The significant growth in expenditure reflected Government policy to use the public sector balance sheet to offset the pandemic-induced contraction in private demand. For example, the three main income and business support schemes, which were the pandemic unemployment payment, the employment wage subsidy scheme and its predecessor the temporary wage subsidy scheme, as well as the Covid restrictions support scheme cost the Exchequer nearly €9.5 billion in 2020.

Turning to the Apple escrow fund, the committee is aware that as part of the European Commission's decision of August 2016, Ireland was ordered to recover from Apple the alleged State aid plus interest related to a ten-year period from 2003 up to 2014. Notwithstanding Ireland's appeal against the Commission's decision, the Irish Government complied with its obligation to recover the sum of €13.1 billion plus interest of €1.2 billion.

The Minister for Finance agreed with Apple that the amounts collected would be held in an escrow fund until the legal process is completed. The Ireland Apple escrow fund was established under the terms of a formal agreement between the Minister for Finance and Apple, pending the final outcome of legal challenges to the findings of a State-aid investigation undertaken by the European Commission.

The investment and management of the fund is jointly overseen by the Minister and Apple, with the Minister's functions delegated to the NTMA. The financial statements for 2020, published on 22 June, set out that the net assets at the end of 2020 totalled €13.98 million. The €36 million decline for the year primarily reflects the negative interest rate environment and negative yields on highly rated euro-sovereign and quasi-sovereign bonds that existed in 2020.

In terms of the Department, I will briefly describe the role that the Department plays in the effective implementation of Government policy. The Department's mission is to lead in the achievement of the Government's economic, fiscal and financial policy goals having regard to the programme for Government. In late 2020, the Department published a new Strategy Statement 2021-2023, which sets out how the Department will continue to work towards achieving strategic goals pertaining to public finances, the economy, the financial sector and the environment.

Despite the enormous challenges posed by Covid-19 in 2020 the Department continued to make progress on achieving these goals. More recently, as the pandemic has receded, the fall-out from the war in Ukraine has posed new and significant challenges for the domestic and international economy through terms of trade shocks not seen since the 1980s coupled with an enormous humanitarian crisis. Officials from the Department of Finance, while engaging with colleagues from across the civil and public service in a whole-of-Government response, have been working hard across a number of key areas. Specifically, the Department has been at the forefront of the implementation of financial market sanctions, as well as working with Government on designing and implementing measures to respond to the cost of living pressures now being felt across society as a result of the issues.

The economic and financial consequences of the Ukraine invasion, both globally and in Ireland, will be considerable. The most direct economic channel through which the war has and will impact Ireland is inflation. The Stability Programme Update, published last month, sets out a scenario in which inflation would average 6.25% this year, falling to 3% next year. Conversely, the forecast for growth has been lowered to 4.25% of modified domestic demand this year, from 6.5% estimated in budget 2022.

The fiscal impact will be large too. At this stage it is difficult to provide an accurate estimate as to the cost of supporting refugees arriving from Ukraine. Work to better understand the potential expenditure requirement is ongoing in the Department of Public Expenditure and Reform.

In closing, I first thank the Comptroller and Auditor General. We are always grateful to his office for the engagement and assistance we receive in ensuring that the Department produces accounts that meet the highest standards in public accounting. Finally, I thank the staff within the Department for their work during the period under review. They demonstrated considerable adaptability and flexibility in adopting to new working arrangements through 2020 to ensure that the core business of the Department continued, as well as put in an enormous effort to deliver and implement new temporary support arrangements at a time when the Irish economy and society most needed them. In addition, I am mindful of the successful collaboration with Oireachtas staff and members of both Houses to ensure the necessary Government and Oireachtas business and scrutiny was conducted as normal in abnormal times.

To conclude, I thank the Chairman and members for their invitation to meet the committee today as well as for their attention. I welcome any follow-on questions.