Pearse Doherty (Donegal, Sinn Fein)
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104. To ask the Minister for Finance the methodology and components of same used to calculate the expected income tax and universal social charge revenues to the Exchequer for 2017; and if he will make a statement on the matter. [22240/17]

Michael Noonan (Limerick City, Fine Gael)
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In general, the forecasts for all tax-heads use a broadly similar methodology. Specifically, in relation to the Budget 2017 forecasts in respect of income tax (PAYE) and Universal Social Charge (PAYE) the approach is set out below:

Firstly an estimate of the 2016 outturn was calculated last October, which became the starting point for 2017, or base year outturn. This starting point is then adjusted to take account of any known one-offs from the previous year or any one-off payments likely to occur in-year as advised by the Revenue Commissioners. In addition, any carryover effects from previous budgets are incorporated into the forecast at this stage.

Taking account of these factors the “clean base” is then grown by the macro-economic data, and relevant tax elasticities. For income tax and USC, the macro-economic drivers applied are non-agricultural pay per capita and non-agriculture employment. A wage and an employment elasticity were then applied to both income tax and USC. Following this, relevant policy changes such as the Budget day income tax package, as costed by the Revenue Commissioners, were incorporated into the forecast.

As a final check the forecasts are reviewed to determine whether the response of taxes to growth in the macro/tax base will change over time. If it is the case that certain taxes are more responsive during cyclical upswings or downturns, then judgement can be incorporated to enhance the overall accuracy of the forecast.

It should be noted that Irish Fiscal Advisory Council (IFAC) have stated previously that judgement can enrich the accuracy of the forecasts. It is important to point out that all the macro-economic data used in the official fiscal forecasts are endorsed by the IFAC in advance of the Budget or Stability Programme Updates. In addition, IFAC are responsible for assessing and commenting on the Governments fiscal forecasts and on the fiscal stance, as well as assessing compliance with fiscal rules. 

As part of the continuous efforts to improve the Department’s tax forecasting performance, research being jointly conducted by the ESRI and Department, which commenced in 2016, examined the sensitivity of income tax and USC revenues to changes in income. As a result of this work published in March 2017, the Department has revised the income tax and USC revenue elasticities used in the forecasting process, which will affect these forecasts from 2018 onwards.

Finally, Budget 2017 outlines the risk to the forecast which exists between the ‘two pack’ requirement for an October Budget and the strong distribution of certain income tax receipts including those from self-employed to later in the year. This presents an in-built potential for volatility.

Pearse Doherty (Donegal, Sinn Fein)
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105. To ask the Minister for Finance the methodology and components of same used to calculate the corporate tax revenues to the Exchequer for 2017; the extent to which 2016 corporate tax receipts played in this calculation; and if he will make a statement on the matter. [22241/17]

Michael Noonan (Limerick City, Fine Gael)
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In general, forecasts for all tax-heads use a broadly similar methodology.  Specifically, in relation to the Budget 2017 forecasts in respect of corporation tax the approach is set out below.

Firstly an estimate of the 2016 outturn was calculated last October, which became the starting point for 2017, or base year outturn. This starting point is then adjusted to take account of any known one-offs from the previous year or any one-off payments/refunds likely to occur in-year, which are provided by the Revenue Commissioners. In addition, any carryover effects from previous budgets are incorporated into the forecast at this stage.    

Taking account of these factors the “clean base” is then grown by the macro-economic data, and relevant tax elasticities. For corporation tax, the macro-economic driver applied is Gross Operating Surplus. Following this, relevant policy changes such as Budget day corporation tax changes, which are costed by the Revenue Commissioners, are incorporated into the forecast.   

As a final check the forecasts are reviewed to determine whether the response of taxes to growth in the macro/tax base will change over time. If it is the case that certain taxes are more responsive during cyclical upswings or downturns, then judgment can be incorporated to enhance the overall accuracy of the forecast.  

It should be noted that Irish Fiscal Advisory Council (IFAC) have stated previously that judgment can enrich the accuracy of the forecasts. It is important to point out that all the macro-economic data used in the official fiscal forecasts are endorsed by the IFAC in advance of the Budget or Stability Programme Updates. In addition, IFAC are responsible for assessing and commenting on the Governments fiscal forecasts and on the fiscal stance, as well as assessing compliance with fiscal rules. 

It should be noted that the 2016 actual outturn of €7,351 million was €164 million or 2.2% below the October 2016 estimate.   

Finally, Budget 2017 outlines the risk to the forecast which exists between the ‘two pack’ requirement for an October Budget and the strong distribution of certain receipts such as corporation tax to later in the year. This presents an in-built potential for volatility.

Róisín Shortall (Dublin North West, Social Democrats)
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106. To ask the Minister for Finance the reason for the reduced income tax receipts in the past two quarters in view of the increased numbers of persons in employment. [22380/17]

Michael Noonan (Limerick City, Fine Gael)
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The position is that income tax receipts have performed steadily in the last two consecutive quarters, recording annual growth of 5.1% (€301 million) and 1.4% (€62 million) respectively. The following tables set out the income tax year-on-year performance in the last two quarters:

However, I assume the Deputy is referring to the income tax performance against target. Revenues under this heading were solid in 2016, with €19,169 million received, finishing the year 0.9 per cent (€174 million) above target. This represented a strong year-on-year increase of 4.4 per cent (€810 million). 

In relation to the first quarter of 2017, the position is that income tax has performed steadily with annual growth of 1.4 per cent or €62 million recorded in the year-to-end-March. However, income tax receipts of €4,417 million were 3.9 per cent below profile. The shortfall against target is attributable across a range of income tax components contained within the overall heading.

It is important to point out that income tax encompasses a broad range of elements, some of which are not directly impacted by employment or wage developments. These include Deposit Interest Retention Tax, Life Assurance Exit Tax, Dividend Withholding Tax, Professional Services Withholding Tax and Back Duty.These payments can be 'lumpy' in nature and the timing of payments can vary from year to year. I am informed by the Revenue Commissioners that the majority of these specific components are having a drag on overall income tax receipts in the first quarter of 2017.

In relation to PAYE, the most significant component of overall income tax, closed quarter 1 of 2017, broadly in line with profile down just 2% (€49 million), but up 6% (€187 million) in year-on-year terms.

However, the PAYE component of USC came in 7% (€63 million) below Revenue profile, which represents a year-on-year decrease of 12 per cent (€107 million). The Deputy will appreciate that a reduction in USC was expected in 2017 given the measures I introduced in Budget 2017.  In addition, it is important to point out that in the last three budgets, I have introduced income tax measures with a full year cost of c. €2.2 billion, of which €1.8 billion related to USC changes, which were designed to encourage and reward work. These will naturally impact upon the annual growth rate of USC receipts.

Notwithstanding this, the performance of USC is lower than expected and the Revenue Commissioners, along with officials from my Department, are examining the matter.

Furthermore, it should be noted that a similar position pertained at the end of the first quarter in 2016 – income tax was up 2.7% (€114 million) year–on-year, but down 3.4% (€153 million versus profile). However, due to a pick-up in receipts throughout the remainder of year, income tax finished 2016 ahead of target.