Dáil Éireann debate -
Tuesday, 25 Jun 2002

Vol. 553 No. 5

Written Answers. - Fiscal Policy.

Paul McGrath

Question:

81 Mr. P. McGrath asked the Minister for Finance if he will review his end of year outturn forecasts in view of recent Exchequer returns which are below budget day predictions and in view of the increased rate of inflation; and if he expects that a supplementary budget will be necessary in the autumn. [14512/02]

Minister for Finance (Mr. McCreevy)

The budget day forecast for the 2002 Exchequer balance is for a surplus of €170 million. This is still the target although it may be achieved by a lower revenue performance than forecast offset by savings and other receipts not available at budget time, including lower than expected EU budget contribution and the proceeds of the sale of ACC Bank. The end-May Exchequer returns showed a surplus of €56 million.

Budget forecasts for the public finances are predicated on the level of activity in the economy and relate to the full year, not a portion of the year. On budget day, an increase of 3.9% in gross domestic product in 2002 was forecast for the year.

The increase in tax receipts in 2002 over 2001 was forecast at budget time to be 8.6%. The end-May Exchequer returns showed tax receipts in the first five months were 1% lower than the same period in 2001 – an improvement from the end-April position of 1.8% below the same period in 2001.

These results must be considered in the context of the budget day changes which will boost revenue later in the year. The 2002 budget change to corporation tax payment dates will enhance receipts from June onwards. The increase in the standard rate of VAT from 20% to 21% in March of this year began to be received in May.

While income tax receipts to end-May show a decrease of 14.7% on the same period last year, it should be noted that the impact of the change to a calendar year means that the first five months of 2002 have had to absorb the income tax changes from both budget 2001 and budget 2002. In addition, payments into SSIA accounts in the period January to May 2002 totalled €125 million whereas there was no payment for SSIA in the period January-May 2001. It is expected that income tax receipts will recover ground over the remainder of the year.

As with tax receipts, it is difficult to draw conclusions for the year from the first five months expenditure. Net voted spending in the first five months was €11,117 million compared to €8,742 million in 2001 – an increase of 27.2%. This compares to a figure of 14.4% in the Revised Estimates Volume. Year-on-year percentage increases in spending are influenced by both spending trends in the base year and in the cur rent year. In 2002, a number of factors including the 1% lump sum which was paid in April and the earlier payment of social welfare benefits have pushed up the year-on-year percentage increase above what it would otherwise have been. Notwithstanding these timing issues, there are pressures on expenditure in some areas such as demand-led schemes in the health area, capital expenditure on national roads and prison officer overtime, for which additional funding will be provided. Departments have been required by Government to take appropriate measures to ensure that expenditures are controlled over the remainder of the year and to make appropriate adjustments to ensure that the final overall outturn for expenditure will come in in line with the original plan for the year as whole. This is a normal procedure following a mid-year review of trends to date. I have no plans to introduce a supplementary budget in advance of budget 2003.