James Bannon (Longford-Westmeath, Fine Gael)
Link to this: Individually | In context

Question 64: To ask the Minister for Finance if he has made changes in his Department's tax forecasting procedures; and if he will make a statement on the matter. [19014/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
Link to this: Individually | In context

Tax revenues are forecast by my Department on a disaggregated individual tax-head basis using relevant macroeconomic drivers and, where appropriate, certain elasticity factors. Last year the Department of Finance published a report produced by a group specifically established to examine the tax forecasting methodologies used by the Department. The Tax Forecasting Methodology Review Group comprised of experts from the Department of Finance, the ESRI, the Revenue Commissioners and the Central Bank and had input from the EU Commission.

In terms of the findings, while the Group suggested that the Department of Finance displays a prudent bias in tax forecasting, it did not suggest any major structural recommendations to the way my Department forecasts tax revenue. However, it did suggest a number of adjustments which the Department is currently implementing. Furthermore, the Group's report also indicated that the Department's methods were not out of line internationally. A copy of the Group's report is available on the Department of Finance website (www.finance.gov.ie).

Notwithstanding the strengths and weaknesses of the methodologies used to produce the technical forecast, judgement and prudence plays an important role in deciding on any forecast. To this end, my Department liaises closely with the Revenue Commissioners to ensure any emerging trends are identified and all relevant data is taken on board.

Furthermore, it must be acknowledged that forecasting is not an exact science and there is always a risk of variance. This has been especially true during recent times, when the global economy has experienced a period of unprecedented uncertainty while our own economy undergoes a significant domestic adjustment. In these circumstances, it has proven to be extremely difficult for all forecasters to accurately predict short-term economic and fiscal trends.

In terms of tax revenue performance so far this year, tax receipts at end-April, at €10.1 billion, are down 24 per cent on the same period last year. This represents 29 per cent of the Supplementary Budget's forecast of €34.4 billion and is generally in line with the average percentage of the end-year outturn received after 4 months over recent years.

When looking at the tax revenue figures to end-April it must be borne in mind that the revenue-raising measures announced in the Supplementary Budget will improve revenues as the year progresses. In addition, there will be a positive base effect upon year-on-year comparisons as 2009 progresses due to the fact that tax revenues worsened during the course of 2008. In overall terms at this stage, based on the current assessment for the economy, my Department still expects that tax revenues will amount to about €341⁄2 billion, which would represent a 151⁄2 per cent decline on last year's outturn.

That said, it is still early in the year and, as such, my Department will continue to monitor the situation on an ongoing basis and will report in detail at the mid-year stage in the context of the end-June Exchequer Returns press conference.