Thursday, 16 December 2021
Department of Finance
126. To ask the Minister for Finance his views on whether the recent divergence between reported and previously forecast Exchequer figures may mitigate against proper planning and resource use and planning in the public finances; his plans to undertake a review of his Department’s forecasting methodologies in view of this issue; and if he will make a statement on the matter. [62146/21]
The November Fiscal Monitor, published by my Department earlier this month, shows the Exchequer performance in the year to date is ahead of profile, with the bulk of over-performance driven by strong tax receipts.
I would like to highlight, however, that the profiles in the Fiscal Monitor were based on macroeconomic projections made at the time of the Stability Programme Update in April, during Level 5 lockdown, and before the strength of the economic recovery became apparent.
The Deputy will note that the projections for 2021 in Budget 2022 represented a significant upward revision on these forecasts.
While an over-performance on Budget forecasts is nonetheless likely, the vast majority of this will be related to volatile and unpredictable corporation tax receipts. My Department has frequently highlighted the challenges in forecasting this revenue stream.
On the broader question of tax forecasting, the methodologies are periodically reviewed by my Department, with the most recent full review by the Tax Forecasting Methodology Review Group published in December 2019.
The group, consisting of members of my Department, along with representatives from the Central Bank, Revenue Commissioners and European Commission, issued a comprehensive review of the Department’s tax forecasting methodology over the previous ten years.
The report found that the overall performance of the methodology was robust and in line with international best practice, although noted that the financial crisis years saw particularly large errors, reflecting the challenges of forecasting in such economic circumstances.
Projecting trends in tax revenue during an unprecedented and once-in-a-century pandemic has been similarly challenging.
Finally, I would like to highlight the medium-term expenditure rule introduced in the Summer Economic Statement and reinforced in Budget 2022. Keeping growth in permanent expenditure in line with the trend growth rate of the economy provides stability in terms of planning and resource use, and mitigates against fluctuations in revenue streams.