Richard Bruton (Dublin North Central, Fine Gael)
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Question 45: To ask the Minister for Finance the assumptions and methodology underpinning his estimate of the increase in revenue from capital taxes in 2006 (details supplied). [8219/06]

Brian Cowen (Laois-Offaly, Fianna Fail)
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The assumptions underpinning the forecasts for capital taxes are based on the economic growth estimates in the stability programme update, which is published on budget day. These estimates include GNP growth forecasts, projected changes in consumer prices and developments in the construction sector.

The methodology for forecasting receipts from capital taxes in 2006 first required my Department to estimate the outturns for the base year, in this case 2005. These projected outturns were then adjusted to take account of known once-off factors, both negative and positive, likely to impact on the yield in 2006. An example would be the discontinuance in 2006 of the bank levy, the receipts from which come under stamp duties. The figures were then refined to take account of the impact of budget measures. These various steps provide the base upon which the 2006 forecasts were built.

The base is then inflated for projected economic developments in 2006. In the case of capital gains tax and capital acquisitions tax, estimated growth is driven by the forecast change in nominal GNP and in the consumer price index, CPI, respectively. For stamp duties, since the bulk of the yield is from transactions in residential and non-residential property, the forecast for 2006 is largely based on estimated volume and price growth in the residential and non-residential property sectors. The methodologies used continue to be developed and my Department continually reviews any available international and domestic developments in forecasting methodologies to improve our approach.

Capital tax receipts are always hard to forecast as they tend to reflect movements in property markets and once-off decisions by buyers and investors. With this in mind, my Department's estimates for revenues in 2006 from capital taxes are as follows: capital gains tax —€2,035 million, capital acquisitions tax —€260 million and stamp duty —€2,685 million. The capital gains tax estimate represents an increase of 3.8% and the capital acquisitions tax estimate an increase of 4.4% on the respective outturns for these taxes in 2005. The stamp duty estimate represents a decrease of 1.5% on the outturn for stamp duties in 2005 but this largely reflects the non-renewal of the bank levy.

The estimates for all three taxes assume a lower rate of growth in revenues from these sources this year than the significant increases experienced last year. They assume, however, a reasonably buoyant market this year, both residential and commercial.

Richard Bruton (Dublin North Central, Fine Gael)
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If one looks back over the past three years of the Minister's forecasts in respect of capital taxes, the aggregate increase he forecast in his Budget Statement was €40 million but the actual increase was €2,975 million. He was 7,440% out in his projection of the increase in capital taxes over the three years. That is a truly extraordinary deviation between forecast and actuality. To suggest, as the Minister does, that he is using best international practice to underpin these forecasts reflects poorly on best international practice which, I suspect, was not so far out.

Almost the entire overrun on tax is from the capital tax area in the past three years. The implication of this wrong estimation is that ordinary taxpayers are paying far more than the Dáil approved under the budget. It also means that the glowing claims the Minister makes at the end of each financial year that his figures have come in ahead of target have largely nothing to do with his management but are due to the people who are stumping up more and more money, particularly in stamp duties.

Does the Minister believe that the forecasts, which were 7,440% wrong, could conceivably be treated as best practice? Is there not a need for the Department's officials to go back to the various experts and re-examine how these yields are being estimated? It is putting a huge extra burden — a sum of €3,000 million over three years — on ordinary taxpayers.

Brian Cowen (Laois-Offaly, Fianna Fail)
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It is not putting a burden on ordinary taxpayers but is ensuring that capital taxes, given that there are low rates of income tax, are making a far better contribution than we expected. Sustained buoyancy in the property market in 2005, which is behind the excess yields in stamp duties, and capital gains taxes defied expectations. The Department of Finance, in common with most other commentators, including the Central Bank and the ESRI, had expected a cooling off in the property market in 2005 but it did not occur. In the circumstances, there was no real basis in December 2004 for projecting increases of more than 30% in these taxes, which took place in 2005.

The big four taxes — VAT, income tax, corporation tax and excise duties — represented close to 90% of all targeted tax revenues in 2005 and accounted for 87% of tax revenues collected. Excluding the excess from the Revenue Commissioners' main special investigations, these tax headings together came within less than 1% of target and accounted for approximately 13% of the total excess in tax revenues in 2005.

Richard Bruton (Dublin North Central, Fine Gael)
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The Minister is saying that 74 times more than was projected is somehow justifiable.

Brian Cowen (Laois-Offaly, Fianna Fail)
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No. In contrast, the relatively smaller tax headings, which are the subject of the question, that is, capital taxes, stamp duties and customs, represented about 10% of targeted revenues in 2005 and they accounted for 13% of tax revenues collected. The excesses in these tax headings account for 70% of the total excess in tax revenues in 2005, due mainly to the continuing strength of the property market. We expected 90% of our tax revenue from the big four taxes but got 87%.

Richard Bruton (Dublin North Central, Fine Gael)
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That was not my question.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I know. I am explaining——

Richard Bruton (Dublin North Central, Fine Gael)
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Time is scarce so the Minister should focus on the question asked, not some bogus question he thinks——

Brian Cowen (Laois-Offaly, Fianna Fail)
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I am putting it in context.

Richard Bruton (Dublin North Central, Fine Gael)
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The Minister is not answering the question.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I am answering the question.

Richard Bruton (Dublin North Central, Fine Gael)
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The Minister is not.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I am. I have outlined the methodologies——

Richard Bruton (Dublin North Central, Fine Gael)
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They are not working.

Brian Cowen (Laois-Offaly, Fianna Fail)
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The Deputy does not want to hear my reply.

Richard Bruton (Dublin North Central, Fine Gael)
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They are not working.

Brian Cowen (Laois-Offaly, Fianna Fail)
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A total of 10% of revenues were expected to come from the tax headings mentioned by the Deputy but they made up 13% of total revenues. When one considers that total revenues are more than €42 billion, it gives an indication of what forecasting involves.

Rory O'Hanlon (Cavan-Monaghan, Ceann Comhairle)
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The time for this question has concluded. We will move to Question No. 46 from Deputy Burton.

Richard Bruton (Dublin North Central, Fine Gael)
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The Minister has failed to address the issue.

Rory O'Hanlon (Cavan-Monaghan, Ceann Comhairle)
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I am sorry, Deputy, we have already spent seven minutes on this question.

Richard Bruton (Dublin North Central, Fine Gael)
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It is a serious issue because it has cost people €3,000 million.

Brian Cowen (Laois-Offaly, Fianna Fail)
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Nonsense.

Richard Bruton (Dublin North Central, Fine Gael)
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That is the truth. The Minister should look at the figures. The truth is that he did not bother to look.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I did look at them. This is nonsense.

Richard Bruton (Dublin North Central, Fine Gael)
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The Minister did not look at the figures.

Rory O'Hanlon (Cavan-Monaghan, Ceann Comhairle)
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Allow the Minister to proceed to the next question.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I am sorry but we are building and selling more houses than expected. Is the Deputy saying it should be done for nothing?

Richard Bruton (Dublin North Central, Fine Gael)
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I am saying the projections should have a sound basis. They are wrong every year and people are paying too much tax as a result.

Rory O'Hanlon (Cavan-Monaghan, Ceann Comhairle)
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Allow the Minister to reply to Deputy Burton's question.