In terms of the recent Fiscal Assessment Report (FAR) published by the Irish Fiscal Advisory Council, I can confirm for the Deputy that I have received the report and will be providing a formal response to the Council which will issue in due course.
Earlier this week, I published the Summer Economic Statement (SES) 2019 which set out the approach that will be taken to the formulation of budgetary policy in advance of Budget 2020. Indeed in the context of the current economic uncertainty, I will be mindful of the policy advice provided by the IMF, European Commission, OECD, as well as IFAC in that we must adopt an appropriate budgetary stance in preparing Budget 2020.
In terms of the Deputy’s question about ‘financial buffers’ for Department Votes, I recognise that a key challenge we face in terms of policy formulation, is ensuring that Departments manage expenditure each year within the allocations voted by Dáil Éireann. In this regard, measures are in place to ensure that our expenditure and budgetary targets are being achieved on an ongoing basis.
Managing the delivery of public services within budgetary allocations is a key responsibility of each Government Minister and Department. The Department of Public Expenditure and Reform is in regular contact with all other Departments and Offices to ensure that expenditure is being managed within the overall fiscal parameters. There is regular reporting to Government on expenditure levels and expenditure profiles are published for each month. The drawdown of funds from the Exchequer is monitored throughout the year and reported on against profile on a monthly basis in the Exchequer Statement.
In relation to the specific recommendation in IFAC’s FAR, I would first note that from a fiscal sustainability perspective, the surge in corporation tax receipts and their highly concentrated nature, highlights the risks of permanently increasing public expenditure or financing reductions in taxation on the basis of potentially transient receipts.
The Government is aware of the risks associated with the concentration of these revenues. That is why:
- We are setting aside some of the historically high levels of corporation tax for the purpose of creating the Rainy Day Fund. Accordingly, a contribution of €500 million to the fund is currently budgeted for in 2019; and
- Our fiscal policy seeks to continue to broaden the tax base – measures which included the introduction of USC, local property tax, the increased VAT rate on tourism, and sugar tax. For 2019 these are projected to raise revenues equivalent to approximately 1.5 per cent of GDP or 5.8 per cent of overall general government revenue.
In addition, a scoping paper will shortly be published, with a number of policy options put forward as to how this specific fiscal risk could potentially be reduced. Some potential solutions are also presented in order to prompt a policy discussion around how best to mitigate these vulnerabilities. It is my intention to give consideration to these – and possibly other suggestions – with a view to making recommendations to Government in the Autumn.
Finally, I would point out that as a result of a longstanding Government policy, we are prioritising the reduction of debt, which in the event of any potential shocks to our tax base, would enhance our fiscal capacity to deal with such an occurrence.