Dáil Éireann debate -
Tuesday, 20 Apr 1999

Vol. 503 No. 3

Written Answers. - Exchequer Surplus.

Michael D. Higgins

Question:

68 Mr. M. Higgins asked the Minister for Finance his views on whether the Exchequer surplus for 1999 may well exceed the budget day prediction; if the Government has any policy in relation to the use of any such un-intended surplus; and if he will make a statement on the matter. [10205/99]

Bernard J. Durkan

Question:

94 Mr. Durkan asked the Minister for Finance the extent to which the quarterly financial returns will impact on the end of year out-turns; and if he will make a statement on the matter. [10192/99]

Jan O'Sullivan

Question:

109 Ms O'Sullivan asked the Minister for Finance the reason his forecast of tax revenue for 1999 has so far been shown to be so inaccurate in view of the first quarter Exchequer returns; when he will revise those forecasts; and if he will make a statement on the matter. [10204/99]

Minister for Finance (Mr. McCreevy)

I propose to take Questions Nos. 68, 70, 94 and 109 together.

As Deputies will be aware, my Department forecast an Exchequer surplus of £925 million for 1999 on budget day.

This target surplus has since been impacted by two factors. Firstly, the actual 1998 outturn for tax was £36 million higher than expected. This additional buoyancy is expected to carry into 1999. Second, a total of £160 million has been received during April by the Exchequer for the Telecom Eireann employee share ownership programme. This had not been included in the budget day arithmetic.

On 6 April last a detailed briefing was given on the performance of the budget over the first three months of 1999. This reported that current and capital expenditure, non-tax revenue and capital resources were in line with budget day expectations, while there were signs that the underlying prospects for tax receipts were positive. The Exchequer returns showed tax receipts for the first quarter of 1999 were 13.3 per cent higher than in the same period last year, compared to a budget day tax forecast for the year as a whole of a 7.7 per cent increase.

While I recognise that this performance is good, Deputies should be aware that this does not as yet reflect the impact the budget day personal tax reliefs or the reduction in corporation tax rates introduced in 1998 – the main impact of which will not be seen until the end of June. The budget day reductions, totalling over £300 million in 1999, will only begin to be reflected from April onwards and should substantially reduce the rate of increase over the remainder of the year. Taking these considerations into account, it is my view that it would be inappropriate to formally revise forecasts on the basis of only three month's performance. To do so at this stage would raise expectations which may not be met. My Department does not intend to formally revise its forecasts for tax receipts or for the budget surplus on foot of the first quarter data.

As regards the matter of the use of the Exchequer surplus, my views are on record. Running a surplus now is a continuation of the prudent fiscal policies which have been a key element of our recent economic success. During this exceptional period of growth it would be inappropriate for Government to spend all the additional resources. We must prepare ourselves to cope with a number of significant challenges such as inevitably slower future economic growth, and a reduction in EU transfers which will increase the burden on the public finances.

Looking further ahead we should take steps now to position the public finances to cope with longer-term liabilities when growth will be much slower as the current favourable demographic trends unwind and the proportion of older people in our population increases.

The case for reducing the national debt is also compelling. That will lead to a reduction in debt servicing, costs which will release resources for more productive purposes in future years, including improvement in our public services, continued tax reform and infrastructural development.

I would point out that the stability and growth pact commits the Government to a budget which is close to balance or in surplus over the full economic cycle. As the Irish economy is now growing at exceptional rates, significant budget surpluses are entirely appropriate and in keeping with the objectives of the pact.