Vol. 548 No. 5
42 Mr. J. Mitchell asked the Minister for Finance if he has received any advice since 1 January 2002 that budget estimates of receipts and expenditure may have to be revised; the expectation on the growth rate of current expenditure for all of 2002 and the growth rate or otherwise of tax and other revenues for all of 2002; and if he will make a statement on the matter. [5754/02]
At budget time the forecast for the 2002 Exchequer balance was for a surplus of €170 million. This remains unchanged from the budget. Forecasts for the public finances are predicated on the level of activity in the economy. On budget day an increase of 3.9% in gross domestic product in 2002 was forecast. Nothing so far would lead me to change this view which is reasonable given the current economic climate.
The increase in tax receipts in 2002 over 2001 was forecast at budget time to be 8.6%. The January Exchequer returns showed that tax receipts in January were disappointing in that they were lower than receipts in January 2001. However, it is important to note that this is not necessarily an indicator of the trend for the year as a whole and it is not appropriate to extrapolate an estimate for the remainder of the year on this basis. In addition, in 2002, a significant element of the tax changes announced in the budget, in the case of VAT and corporation tax, will not take effect until later in the year. The standard rate of VAT will increase from 20% to 21% in March this year and the impact of this increase should be evident from the May receipts onwards. The changes in the corporation tax payment dates will be evident in receipts from June 2002 onwards.
As with tax receipts, it is difficult to draw conclusions for the year from one month's spending increase. In fact, in the case of voted current expenditure, January spending was 7.4% of the annual estimate which is less than one twelfth of spending for the year as a whole. As the year advances, it is likely that the emerging position in some areas will improve while in others there will be a disimprovement. This is characteristic of the normal activity in the headings which comprise the Exchequer balance depending also on the pattern of economic growth during the year.
As the Deputy will be aware, the Exchequer returns are analysed in detail on a quarterly basis throughout the year. An assessment of quarterly trends provides a better basis for examining emerging trends and comparing them with previous years and existing forecasts.
Has the Minister, within his Department, a profile for the year giving the likely or expected outturn for expenditure and income for each of the 12 months? If so, will he tell the House how the outturn for January compares to his Department's forecast?
The Revenue Commissioners keep a profile of expenditure. When the quarterly returns are announced the data at that particular time give under each heading the figure for a particular item as against the Revenue profile. The Revenue Commissioners do this on a quarterly basis and a press conference is held at which journalists ask questions about the various areas of interest to them.
There has been some comment about the January figures. I will point something out to the Deputy about the Revenue side. It would be foolish to take the month of January as an indicator for the whole year. In January 2001 receipts were 19% over those of January 2000. However, the receipts for 2001 were down to a far lower level. If one had extrapolated from the January 2001 figures, the Exchequer surplus for 2001 should have been enormous, but it was not. It is incorrect to base assumptions on one month's figures.
There are technical reasons the figures for January 2002 were not up to the level of 2001, of which one was that January 2001 showed an enormous increase on the previous January. I have already referred to the question of VAT and corporation tax which were attacked later in the year. The change in the short tax year means that P35s, which would normally have been received in April – the end of the tax year for all employees – will be received in February. There was a tendency during the years that people would group their monthly accounts with their P35 at the end of the tax year and send them in. The P30, which gives the monthly figure for PAYE, would only have operated from 6 to 31 December.
Because of these factors, I would not like too much to be read into the figures for January 2002. A better trend will emerge when the quarterly figures are announced in March. This should be borne in mind.
I am sure that the Department had all those matters in mind when it drew up the profile for the year, although the Minister did not refer to this. I will ask my question again—
The Deputy is wrong; the Department would not do that. If it had, it would have been astounded by the 19% rise in January 2001 over the figure for January 2000. Quarterly trends are a better basis.
Presumably, the Department has learned to forecast better, although it has been very bad at it for the past two years. I want to ask my question again. Is there a month-by-month profile of estimated receipts and expenditure in the Department for this year? Yes or no?
I explained that the Revenue Commissioners keep a profile, the details of which are given when the quarterly figures are announced. Against this, there are receipts under every tax heading and figures for what Revenue would have expected under each heading. The estimation of receipts under the various headings is done independently of the Minister for Finance. It is done in conjunction with the Revenue Commissioners and officers of my Department before the budget each year. I have no hand, act or part in it.
The Minister is responsible for it.
I am simply saying that it is done independently. Last week during Second Stage of the Finance Bill the Deputy seemed to impugn the motives of officials of my Department in producing the figures.
It is well known and accepted that the forecasts of the Department have been way out in the past three years and we will make that criticism regardless of who is at fault. The Minister is ultimately responsible. I will go back to my question – I do not why the Minister is evading it. What do the monthly projections of the Department state about what should have been the outturn for revenue and expenditure for January? How do they compare to the actual outturn? What is the Minister evading? What is he hiding?
Nobody is evading anything except the elements of confusion in the Deputy's mind regarding these matters. As I explained to the Deputy, the quarterly figures are announced every quarter.
I am asking about the monthly figures.
The actual receipts are always compared to expected revenue. For all the years I have been Minister for Finance—
There is the monthly expenditure profile.
Yes, and, as I pointed out, the monthly expenditure profile for the month of January is less than one twelfth of what it would have been for the year as a whole. The revenue receipts in the Department of Finance have been wrong for the last decade. As I used to point out to my Cabinet colleagues and in this House, we underestimated the receipts when the economy was growing at record levels or by considerable amounts and other countries have always done that. It was not a particularly unique phenomenon last year when the tide turned in the other direction.
If the Minister now accepts that expenditure for the month is below profile – if that is what he said—
I said the expenditure for the month, one twelfth of 100%, is more than 8.3% whereas current expenditure last month was 7.4%. I pointed out in my reply that would be less than one twelfth of the annual—
Does it not follow, therefore, that the Minister's revenue projections are way out of line and on the wrong side?
We must bring this question to a conclusion and proceed to Question No. 44. Question No. 43 must fall as I understand Deputy McGrath is unavoidably absent.
