Vol. 552 No. 3
26 Mr. J. Mitchell asked the Minister for Finance if he has initiated a study or research into the reason there is not apparent buoyancy of revenue arising from the 22% growth in current expenditure in 2001 and the 20.6% additional increase in January-March 2002; and if he will make a statement on the matter. [12507/02]
Current expenditure increased by 16.4% in 2001 and by 20.6% in the first quarter of this year compared to the same period in 2001. These increases in public expenditure contributed to overall economic activity and therefore to tax revenues. This is because, for example, additional public expenditure can lead to increased numbers of public service workers and the additional amounts of income tax or indirect tax collected as a result would accrue to the Exchequer. Tax receipts in 2001 were 3.2% above the 2000 outturn and tax receipts in the first quarter of 2002 were 2.8% lower than in the same period in 2001. These figures include the positive impact of additional public expenditure on tax revenues in those periods.
However, revenue yield is a function inter alia of developments across the economy as a whole. Any assessment of revenue performance, therefore, requires to be made by reference to the broad sweep of economic developments. It is not possible to meaningfully disaggregate the impact of additional public expenditure on tax revenues from all the other factors, domestic and external, which have been contributing to ongoing economic and revenue performance. Accordingly, I have not initiated any specific study or research of the particular nature referred to by the Deputy. My Department monitors economic and revenue trends, and the methodology used to forecast them, on an ongoing basis in the context of the broad range of domestic and international economic developments.
Would the Minister not accept that there is a normal relationship between increased expenditure and buoyancy of revenue? As Minister for Finance for many budgets, I always discussed this issue with departmental officials and we could have expected at least 33% buoyancy from expenditure. If that is the case, a 22% increase in current expenditure should yield between 7% and 8% growth in income, but, as the Minister admitted, it only went up by 3.2% last year. When we take the first three months of this year, the figures are worse because revenue is down by 2.8% despite expenditure increasing by 20.6% when the central fund is taken into account. Is it a worry that another big, black hole has been created in the economy? Is it also a worry that money the Government is spending is going straight out of the economy on holidays and new properties in Spain, Portugal and France? Will the Minister admit this is a possibility?
The question the Deputy asked refers to the effect of increased Government spending in particular areas and I replied that it is not possible to disaggregate its impact from the general economic mix in terms of what is happening in the economy generally. The amount of extra money invested in the economy by the Exchequer through lower taxes or increased public expenditure has an effect on spending patterns which, for example, should lead to increased excise and other indirect taxes such as VAT. However, that must be borne in mind in terms of what is happening in the economy generally in terms of unemployment and export patterns. The Deputy asked whether we initiated a study to identify that particular item and the answer is "no".
Economic activity was very high from the beginning to the middle of 2001 but for the latter six months of the year it was very flat. The oomph going into 2002 was very small. All commentators are predicting that activity will curve upwards and the second half of 2002 will be very good. In recent years the amount going into the economy through increased Government expenditure and lower taxes has been considerable and that had to have had a beneficial effect on economic activity, but the extent of the public expenditure element in this is impossible to quantify. The Deputy raised questions which perhaps academics can debate and research more thoroughly in years to come.
These questions are more than academic. It is almost certain that the Government's economic policies are in total disarray and, in the absence of buoyancy, there is evidence that money is pouring out of the country without having a beneficial effect within the country. Does the Minister acknowledge, if one takes any year over the past ten years, there was a correlation between expenditure and buoyancy of revenue, which was absent in 2001 and even more so in the first quarter of this year?
The Deputy is trying to marry the effect of increased taxation vis-à-vis increasing expenditure by the Government in other areas and establish what has been the trade off. The figures for 2001 were down on the estimated figures at the start of the year, but that was on account of the slow down in economic activity. It is an open question as to the effect of the extra money in the economy and whether one can relate to that to, for example, Government revenue in terms of income tax, excise duties, etc. There has certainly been a trade off between that and indirect taxation but the extent of it is very hard to quantify.
In an open economy such as Ireland's, people use their additional moneys to do all sorts of things. The evidence of the 1970s and 1980s suggests that such money was used to import foreign goods and that had an effect on a variety of areas and on the currency but now that Ireland is part of the single currency, we do not have to worry about that.
The Minister has not answered my question. Does he acknowledge there was something out of kilter in 2001 and in the first quarter of 2002 compared to previous years and that the normal relationship between expenditure and buoyancy of revenue has disappeared, which is worrying?
One cannot go that far and make such an extrapolation. In 2001 there was a slow down in economic activity due to the global downturn. I would not go so far as to make the Deputy's extrapolation.
The Minister is pouring money out of the economy and it is about time he left office.
Let us ask the people that question.
