Written answers

Wednesday, 7 February 2007

9:00 pm

Photo of Dan BoyleDan Boyle (Cork South Central, Green Party)
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Question 150: To ask the Minister for Finance if he is confident in mechanisms used to make Exchequer return projections which form an important basis of spending allocations in view of the inaccuracy by millions of the end of year Exchequer projections made at the time of the budget compared to the eventual returns. [4069/07]

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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I assume that the Deputy, in using the phrase "inaccuracy by millions" is referring to the difference, in recent years, between actual tax revenues and the Budget day forecasts.

There have been valid reasons for the extent of these differences in recent years, including the stronger than expected pace of economic growth and once-off factors such as the yield from Revenue special investigations. However, the most significant reason for the difference between tax forecasts and actual outturns in recent years is the very strong growth in capital taxes reflecting, amongst other things, the exceptional growth in the property market.

It is always difficult to make accurate tax forecasts. The underestimate of taxes since 1975 is nearly 5% on average, with the highest underestimates arising in 1976 and 1988. My Department keeps its approach to tax forecasting under review on an ongoing basis. For this reason, a Group chaired by a Senior Economist from the Central Bank, currently on secondment to my Department has been established to conduct a review of the tax forecasting methodology. The Group currently comprises other experts from my Department, the ESRI, the Revenue Commissioners and the Central Bank. It is due to report in June 2007.

In terms of the tax forecasts forming an important basis of spending allocations and in order to dispel any fears of deliberate under-projecting of taxes as a means of putting downward pressure on expenditure, I would like to point out that in the period since 2002, voted expenditure has grown by an average of nearly 8% per year and furthermore in each of the years 2002 to 2006, voted departmental expenditure recorded savings on the original Budget allocation. This indicates that expenditure allocations have been more than adequate in meeting Department's spending requirements.

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