Tax revenues are forecast by my Department on a disaggregated individual tax-head basis using relevant macro-economic drivers and, where appropriate, certain elasticity factors. The basic methodology is to estimate the base-year outturn, adjust for any known once-off factors and then grow the adjusted outturn by a macro-economic driver or "macro". Notwithstanding the strengths/weaknesses of the methodologies used to produce the technical forecast, judgement/prudence plays an important role in deciding on a forecast. To this end, the Department liaises closely with the Revenue Commissioners to ensure any emerging trends are identified and all relevant data is taken on board.
It is important to clarify that the income tax forecast for 2013 was based on a projected outturn for 2012 of €15,040 million, representing an estimated increase of approximately €820 million (5.4%) at the time of the Budget 2013 publication. As this forecast was published before the better than expected end-December Exchequer Returns were released, it did not take this improved outturn into account. My Department will release its next set of tax revenue forecasts as part of the 2013 April Stability Programme Update publication.
The Income Tax projection is made up of a number of different components, the largest of which are PAYE and USC PAYE. These are forecast using projected growth in non-agricultural earnings together with an earnings elasticity factor and forecast growth in non-agricultural employment together with an employment elasticity factor. The elasticity factors are produced by Revenue’s taxpayer’s model and take account of the fact that new and existing employees are likely to pay tax at different marginal tax rates. With regard to the expected decline in public sector numbers, this estimate has been factored in to the Department’s non-agricultural employment forecast.
Inclusive of carry-forward from previous Budget measures, an estimated total of €260 million of new Income Tax measures are scheduled to take effect in 2013. New Income Tax raising measures announced as part of Budget 2013 include the Pre-retirement access to funded Additional Voluntary Contributions measure as well as changes to the DIRT rate, amongst others.
With regard to the permanent adjustment to the tax base resulting from the PRSI/Income Tax reclassification issue that occurred in 2012, I would like to inform the Deputy that a residual of approximately €47 million is estimated to benefit revenues in 2013.
