Michael McGrath (Cork South Central, Fianna Fail)
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Developments in labour demand and labour supply underpin the employment projections my Department publishes in the Budget and Stability Programme Update each year.

In broad terms, economic growth and employment have generally moved in tandem with one another, with higher levels of output typically leading to higher levels of employment and this is the driving force in the modelling that underpins my Department’s projections. Economic developments since the pandemic clearly reflect this relationship. Modified domestic demand – my preferred measure of domestic economic activity - plummeted following the outbreak of the pandemic. Employment also fell sharply as labour demand declined in the face of weakening economic activity. However, the reopening of the economy saw a rapid rebound in both economic activity and employment.

Of course, the outlook for employment also depends on the availability of labour. This is particularly important in an Irish context. Additions to labour supply as a result of both net inward migration and increased participation can explain the strong growth in employment over the past year. With unemployment expected to remain at historically low levels and labour force participation already elevated, sources of domestic labour supply are likely to be more limited going forward. Labour force and employment growth will thus be reliant on net migration.

Indeed, employment growth is expected to continue to moderate over the course of this year in line with demand conditions. However, with net inward migration expected to moderate, labour supply will act as a constraint on employment growth thereafter. My Department will publish updated macroeconomic forecasts, including employment projections, as part of the Stability Programme Update later this month.

Michael McGrath (Cork South Central, Fianna Fail)
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My Department’s projections for tax revenue are based on the relevant macroeconomic indicators across each tax head: for example, personal income tax is grown in line with forecasts for wage and employment growth for the coming years. The projections also take into account other factors that can impact on receipts, such as policy measures, once-off factors and specialist judgement. The latest tax revenue projections were published alongside the Budget in October and will be reviewed as part of the update to the full suite of macroeconomic and fiscal forecasts in the Stability Programme Update later this month.

My Department periodically reviews its methodology for forecasting tax revenues, most recently in 2019 with the publication of the Tax Forecasting Methodological Review. This report provides a comprehensive overview of the Department’s approach to tax forecasting and can be found at the below link.

www.gov.ie/en/publication/76468a-tax-forecasting-methodological-review-2019/