Willie Penrose (Longford-Westmeath, Labour)
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Question 102: To ask the Tánaiste and Minister for Finance if his attention has been drawn to the concerns expressed by the Comptroller and Auditor General in his most recent report at the significant underestimation of tax revenues by his Department in each of the past three years; the steps he is taking to ensure a more accurate level of forecasting by his Department; and if he will make a statement on the matter. [29580/07]

Brian Cowen (Laois-Offaly, Fianna Fail)
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The Deputy should note that the Comptroller and Auditor General has not expressed concerns in this matter. In his report on the 2006 Accounts he has reviewed tax forecasts, recorded the facts and the views of the Accounting Officer. The report also referred to an October 2005 analysis by the International Monetary Fund of Ireland's track record on forecasting fiscal balance. It said: "On the revenue side the [IMF] analysis found that stronger-than-expected economic growth and buoyant asset price developments were the main reasons for the overshooting of tax revenue. In terms of economic growth forecasts, upon which the tax forecasts are based, it was outlined that Department of Finance forecasts were not dissimilar to those of other institutions, and the difficulty in forecasting economic growth in a period of strong economic growth was highlighted. The IMF recommended the continuation of what it called the "prudent approach" to budget forecasts given the risks that asset developments may not continue to contribute significantly to large upside surprises. It also stated that the institutional framework for fiscal policy and budget forecasting practices in Ireland are relatively strong compared with other countries."

Exchequer tax revenues in each of the last three years have been better than Budget Day estimates. In 2004 tax revenues were 6.5 per cent ahead of target. In 2005, receipts were 4.7 per cent ahead of target and in 2006 tax revenues were 9.3 per cent ahead of target. These additional receipts allowed for a significant reduction in debt levels which is a welcome outcome. One of the reasons for the improved revenue performance was stronger economic activity in the years in question.

Excluding the impact of special investigations receipts, which, by their nature, could not be forecast with any degree of accuracy, the "big four" taxes — VAT, income tax, corporation tax and excise duties — which have accounted for around 85-90 per cent of actual tax revenues in the last three years have been close to target, particularly in 2004 and 2005.

Nevertheless, my Department is anxious to provide the most accurate tax forecasts possible in order to assist in managing the economy and the budgetary process. Therefore, the approach to tax forecasting is kept under review on an ongoing basis. For that reason, a Group chaired by a Senior Economist from the Central Bank, currently on secondment to the Department of Finance, was formed to conduct a review of the methodology employed. As I have only recently received the report my consideration of the findings and recommendations of the report is still ongoing.