Mr. John Hogan:

I thank the Chair and committee for the opportunity to address them. I am accompanied by Mr. John McCarthy, the Department's chief economist, Ms Cunningham, head of tax, Mr. Carville, head of the shareholding and financial advisory division, Ms Scott, head of corporate affairs, and Ms Laura Cunningham, our finance officer. I will focus on the specific items on today's agenda and try to keep my comments brief.

Before beginning with the appropriation accounts, I thank the Comptroller and Auditor General. We are always grateful to his office for the engagement and assistance we receive in ensuring the Department produces accounts that meet the highest standards in public accounting. The estimate for the Department for 2021 was set at €40.66 million, or €39.51 million net of appropriations-in-aid available. The gross outturn spend for the year was just over €36.3 million, which was €4.28 million or 10.5% under the available allocation. As a result, the Department surrendered €4.28 million to the Exchequer. The end-of-year surplus arose for the following reasons: there was an underspend of more than €1.9 million on consultancy and other services costs; approximately €670,000 of the capital budget was left unspent as a result of public health restrictions in the construction sector; for similar reasons, there was an underspend on travel and subsistence of €450,000; and there was an underspend on the disabled drivers fuel grant scheme of €2.79 million. That scheme is demand-led and difficult to predict with great certainty.

With regard to the Exchequer financial outturn for 2021, I draw the committee’s attention to the following key points. Despite the continuing impact of the pandemic, tax revenues held up very well, rising by €11 billion or 20% on 2020. 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 39% of overall tax revenues in 2021. Taxes in the year were €26.7 billion, almost €4 billion higher than the previous year. The strong performance in income tax was very encouraging.

The economy in general, and the labour market in particular, adjusted well to the imposition of public health restrictions. Generally speaking, the economic impact of each successive round of restrictions was less severe than those of the previous rounds. The critical role of the Government’s main income and business support measures, namely, the pandemic unemployment payment, PUP, the employment wage subsidy scheme, EWSS, and the Covid restrictions support scheme, CRSS, should not be underestimated. Despite their significant costs, in the absence of the measures, the position for households, businesses and the economic situation, including the public finances, would have been far worse.

Corporation tax receipts once again over-performed, mainly due to high levels of profitability in a number of key sectors. Deputies will be aware that the Department of Finance published a paper in September this year, De-Risking The Public Finances: Assessing Corporation Tax Receipts. That paper estimated the level of corporation tax, CT, revenue at risk in 2021 could be in the region of €4 billion to €6 billion. The fiscal metrics published with budget 2023 reflect this underlying vulnerability. The GGB*, general Government balance, adjusted for excess CT, will be reported in all future documentation. The domestically focused tax heads also recovered strongly as public health restrictions eased. VAT receipts, for instance, increased by 24%. On the expenditure side, total net voted expenditure was €71.6 billion, an increase of €3.7 billion, or 5.5% on 2020.

Moving to the chapter on banking stabilisation measures, I note the estimated cost has increased from €41.7 billion at the end of 2018 to €45.7 billion at the end of 2021. The increase was primarily due to the value of the State’s investments in the three banks falling over this time. The most significant costs to the State at the end of 2021 were in respect of the IBRC, which had a net estimated cost of €37.3 billion, the vast majority of which will unfortunately never be recovered. Of the three remaining banks, we have made good progress on reducing our shareholding during 2021 and 2022. Some €21.1 billion has been recovered by way of disposals, investment income and liability guarantee fees. As part of this activity, the State has fully disposed of its investment in Bank of Ireland. The remaining investments in AIB and Permanent TSB, PTSB, are currently valued at approximately €5.3 billion.

On 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 Government complied with its obligation to recover the sum of €13.1 billion, plus interest of €1.2 billion. The Minister 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. 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 2021, published in July 2022, set out the net assets of the fund at the end of December 2021 as totalling €13.63 billion. The year-on-year reduction in the balance on the account is primarily due to a third-country adjustment of €246 million, which was transferred out of the fund. There were also significant negative interest rate charges over recent years.

As Deputies will know, 2021 was a very challenging year. Families all over the country lost loved ones, front-line workers bravely continued to go to work to ensure the safety and health of the rest of us, and economic and social life was heavily curtailed. I take this opportunity to express my appreciation to the staff of the Department for their work during this period. Thankfully, much of the work of the Department could be done from home. However, staff members continued to service, in person, various Oireachtas committees, as well as attend on-site to produce the Department’s set-piece programmes of work, such as the budget and Finance Bill.

As the worst impacts of the pandemic receded earlier this year, the optimism that accompanied this was quickly tempered by the fallout from the invasion of Ukraine. The energy crisis precipitated by the war has led to an inflationary environment not seen in decades. As prices rise, the Government has sought to protect the most vulnerable. The Department of Finance is at the forefront of these efforts. Budget 2023 introduced a number of measures via the tax system to protect people’s incomes and alleviate some of the pressures individuals, families and businesses are facing.

The Department has also led the implementation of financial market sanctions against Russia. Officials from the Department continue to work with colleagues from across the public service to ensure these sanctions are implemented. The Government is committed to supporting Ukrainians as they flee the horror of the war. The Department will continue to do what it can to support that effort.

The global economic environment has worsened considerably since my last appearance before the committee. Rising energy prices have translated into higher prices for food, clothing and basic services across the world. Reduced real incomes, falling consumption and a slowdown in investment will likely lead to recessions in some of our key trading partners. Although better placed than most, Ireland is not immune to these global trends. In budget 2023, the Department revised downwards the forecast for modified domestic demand, which is the best measure of domestic economic conditions, by 2.7 percentage points to just 1.2% in 2023. Inflation is estimated to average at just over 7% next year and 2.4% in 2024. Like all central banks, the European Central Bank has been responding, raising interest rates in recent months. Increased rates mean higher borrowing costs for individuals and businesses, potentially dampening consumption and leading to less investment in the economy. In summary, the economic situation will worsen over the short to medium term.

In such uncertain times, the core mission of this Department, which is to lead in the achievement of the Government's economic, fiscal and financial policy goals, is critical. The senior management team and I will continue to work with the Government to ensure these goals are achieved.

I thank the committee for its invitation to address members as well as for their attention. My team and I are happy to take follow-on questions.