Dáil Éireann Debate, Tuesday - 29 September 2015
121. Deputy Michael McGrath asked the Minister for Finance his views on the constraints on budget 2016 tax decisions arising from European Union and domestic rules; the impact of the carrying forward of previous taxation measures on the scope for tax changes in 2016; and if he will make a statement on the matter. [33183/15]
View answerBudget day is just two weeks away, as the Minister well knows. The fiscal space of €1.2 billion to €1.5 billion was announced by the Government back in April. The purpose of my question is to bring that announcement up to date and focus, in particular, on the taxation side. The Minister has said it is his intention to split the expenditure and tax sides broadly evenly, so that amounts to €750 million on the tax side. Can the Minister clarify the impact of carry-forward measures, for example, and the first-year effect versus the effect for subsequent years? Can he confirm the capacity he has to announce new taxation measures in the budget in two weeks' time?
Again, I thank the Deputy for his questions. The budget will be on this day in two weeks so we are getting close.
Budget 2016 will be the first budget framed under the reformed and strengthened preventive arm of the Stability and Growth Pact. As published in the spring economic statement, fiscal space of €1.2 billion to €1.5 billion will be available for new expenditure or revenue measures in budget 2016. This estimate of fiscal space was designed to ensure compliance with the fiscal rules, particularly the expenditure benchmark pillar. This quantum of fiscal space and the breakdown agreed by the Government is already well known, namely a 50:50 split between revenue and expenditure. This formed the basis for discussion at the national economic dialogue, held in July, at which there was broad consensus that budgetary demands would have to be met from this package.
The exact size of the fiscal space will be finalised in the coming weeks, taking into account various inputs, such as the projected inflation rate - the GDP deflator - any discretionary tax measures and other elements of general Government expenditure outside central government.
With regard to the carryover effect of measures previously introduced or due to expire in 2016, this estimated cost of just over €0.3 billion was taken fully into account in the calculation of the estimated fiscal space of €1.2 billion to €1.5 billion.
A budgetary package of €1.2 billion to €1.5 billion will provide for increases in key expenditure areas and lower the high tax burden on the squeezed middle. I reiterate the importance of delivering a budget that is consistent with the pre-announced fiscal space. The quantum is appropriate from an economic and fiscal policy perspective, a view which is shared by the Irish Fiscal Advisory Council, as stated in its recent pre-budget statement. This will give further confidence to the markets that the Government remains committed to sensible and prudent fiscal policy.
I thank the Minister for his reply. Can he clarify that, in terms of taxation, he has a potential envelope of up to €750 million? Is that the quantum of net new measures on the taxation side? Obviously it is open to the Minister to increase taxation in certain areas and he has made some comments in that direction. Therefore, is he talking about net new tax measures of up to €750 million? Will that then be reduced by the €300 million to €340 million of carry-forward measures or is this already taken into account in the context of the €750 million? I think the Minister confirmed in reply to a parliamentary question that the figure of 1.2% to 1.5% - so, in effect, the €750 million on the tax side - is the first-year effect. Of course, the subsequent year effect is greater. Perhaps €750 million in the first year could be a tax package of €1 billion in terms of a full tax year.
If the Minister could clarify those matters, it would be really helpful. We all recall that, last year, questions to the Minister for Finance were taken less than two weeks prior to the introduction of the budget and that the latter was expected to be neutral. Then, however, an expansionary budget of €1 billion was brought forward. Can the Minister please tell us, therefore, what exactly are the answers to those questions?
I thank the Deputy again. First of all, the carryover is in the base as published in the spring statement, so the €750 million is net of that. The €750 million is available for tax reductions amounting to that value in 2016 and the full-year effect is higher. All those announcements will be made on budget day, but this is not a new departure. Every time a budget is introduced here there is a first-year effect and a full-year effect, and that is not going to change. Deputies will be given full information in two weeks' time, either in the budget statement or in the documents accompanying the budget.
I have a supplementary question on that. Given that the economic data are changing constantly and, thankfully, are moving in a positive direction in terms of employment and Exchequer figures - I presume that in the next two or three days the Minister will receive the Exchequer figures for September - is there scope to go beyond that overall envelope if the updated information is more positive than he has anticipated or is he constrained by EU and domestic rules to remain within the 1.2% to 1.5%, irrespective of the resources actually available?
I call on the Minister to conclude.
The Deputy is correct that Exchequer returns will be available to me late on Wednesday evening. They will be announced on Friday in the normal way. Not only do those returns reflect the monthly position, they are also a reflection of the end-of-quarter position at the end of September. With the information available as of yesterday evening, they will either be on profile or slightly ahead. They may, in fact, be a little bit more ahead. One never knows what is going to happen in the final days of a tax returns period, especially in a VAT month. That is the position. Any additional resources that come in can be used, for example, to fund Supplementary Estimates for 2015 but they cannot be carried over in terms of 2016. In calculating the base for 2016 and tax flows for 2016, stronger flows on individual heads coming into the fourth quarter of the year could influence the estimation. We have already sent our forecasts to the Irish Fiscal Advisory Council, however, so there is little or no scope for moving beyond the parameters of 1.2% to 1.5%. In any event, it is my policy, as Minister for Finance - that policy is endorsed by the Government - that we remain within that particular scope for the budget.
