Dáil Éireann Debate, Tuesday - 3 March 2015
218. Deputy Michael McGrath asked the Minister for Finance the impact on the nominal deficit, and the general Government deficit, of growth in gross domestic product exceeding projected levels in 2015 by 1%; and if he will make a statement on the matter. [9161/15]
View answerIn terms of economic growth underpinning the Budget 2015 forecast, real GDP is forecast to grow at 3.9% in 2015 while nominal GDP, which is a recognised proxy in relation to the growth of taxes and also the denominator used in the deficit/GDP ratio, is forecast to grow at 5.3%.
There is no simple answer with regard to the impact of different headline growth rates on the deficit as the exact impact would depend on the composition of growth. For example, growth driven by exports does not have as significant an impact on the public finances as domestically driven growth. However, as a general rule of thumb, assuming no change in tax policy, a one percentage point increase in nominal GDP would be expected to yield about one percentage point in additional tax revenue. An increase in nominal GDP would also increase the denominator used to calculate the deficit ratio.
Therefore, on the assumption that all of the increased revenue was used for deficit reduction with no increase in expenditure, the following table illustrates the potential results of a one percent point increase in GDP growth on the nominal deficit and the general government deficit as a percentage of GDP compared to the Budget 2015 forecasts.
|
|
Budget 2015 |
1% increase in GDP growth |
|
|
€m |
€m |
|
Tax Revenue |
42,300 |
42,710 |
|
Underlying General Government Balance |
-5,195 |
-4,785 |
|
% of GDP |
-2.7% |
-2.4% |
|
Nominal GDP |
193,475 |
195,375 |
