Carol Nolan (Offaly, Independent)
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327. To ask the Minister for Finance if he is confident in the methodology behind the Revenue Commissioners ready reckoner, which estimates the fiscal impact of changes to tobacco excise; if he accepts that the model appears not to take into account any behavioural responses such as changes in consumption patterns or the growth of the illicit trade driven by consumers seeking alternative purchasing routes in response to high excise; the steps being taken to improve the accuracy and reliability of such projections; and if he will make a statement on the matter. [37268/25]

Paschal Donohoe (Dublin Central, Fine Gael)
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For several years Tobacco Products Tax (TPT) annual receipts remained relatively stable, with successive annual rate increases broadly offsetting the impact of reductions in the volume of tobacco products released for consumption. The underlying decline in the level of consumption of Irish duty-paid tobacco products is driven by a number of factors. These include public health campaigns, smoking-cessation services, changing social norms, the uptake of alternative products such as e-cigarettes, the high levels of non-Irish duty paid products being brought into the State legally through duty-free/duty-paid EU purchases, and the level of illicit trade. In this context, forecasting TPT yields has become increasingly difficult.

Each year, at budget time, Revenue publishes a Ready Reckoner which shows the projected Exchequer costs and yields of possible changes to rates for a range of taxes. The Ready Reckoner includes estimates relating to TPT and shows the estimated full-year impact on the TPT yield if the tax rates were increased by certain amounts.

I am advised by Revenue that the methodology underpinning its Ready Reckoner is designed to account for behavioural responses by providing a short-term fiscal projection of receipts following an increase in TPT. The model applies a conservative short-term price-elasticity-of-demand to current consumption volumes, providing the impact of a range of TPT increases to existing consumption levels. By design, the Ready Reckoner’s tobacco estimates do not attempt to capture longer-term behavioural responses or smoking consumption-dependent factors, such as gradual cessation or uptake rates, substitution between tobacco products, substitution to alternative nicotine products, the extent of legal and illegal non-Irish-duty-paid tobacco products or other consumption dependant factors.

Accordingly, the Ready Reckoner should be understood as showing the projected incremental change in the tax yield over and above the underlying downward trend in consumption that would likely occur without a price increase.

While changing market dynamics create a level of uncertainty, tobacco excise tax forecasts are estimated as accurately as possible given the complex nature of the tobacco market and the various factors that influence consumption and revenue. Given the Ready Reckoner’s objective of providing a short-term fiscal projection of receipts following an increase in TPT, I am satisfied with the methodology used by the Revenue Commissioners.