Parliamentary Budget Office (PBO) releases its latest Quarterly Economic and Fiscal Commentary

-Strong growth in Q3 but risks remain

The Irish economy as measured by GDP grew by 4.2% in Q3 2017 relative to the previous quarter and was up 10.4% compared to the corresponding period in 2016. Other economic indicators include increased employment, lower levels of unemployment coupled with higher industrial turnover and retail sales. The Commentary also points to various risks to the economy including international economic developments, Brexit and high levels of public and private debt.

-Positive revenue developments helped improve the Exchequer balance

The fiscal performance in 2017 saw higher revenue levels in 2017 compared to 2016 while public expenditure also increased year on year.

On the revenue side, the Commentary highlights that the performance across the tax heads was uneven:

•    The income tax take was €236 million below expectation: it is unclear from the figures what is driving this. Income tax from the PAYE sector together with overall USC are in line with expectations which means that the take from other income taxes, such from the self-employed, Deposit Interest Retention Tax, Professional Services Withholding Tax, Life Assurance Exit Tax, and Dividend Withholding Tax, is significantly below expectations.
•    Corporation Tax receipts are significantly over expectations by €486 million or 6.3%. Corporation Tax receipts have almost doubled in the last three years and are highly concentrated, with a small number of multinationals accounting for a large share. This leaves Ireland’s public finances susceptible to potential market shocks.
Overall public expenditure was down €162 million from the original allocation and profile. This was mainly due to variations in the EU Budget Contribution (-€384 million), and National Debt interest (-€206 million) offset by higher current voted expenditure (+€436 million).

Most Government departments either reached or were below their initial 2017 current expenditure allocations. The Commentary highlights current expenditure overspends in:

•    the Department of Health
•     the Department of Housing, Planning and Local Government (due to the ending of water charges and the refunding of previously paid charges)

The Department of Housing, Planning and Local Government also exceeds its 2017 allocation in respect of capital expenditure due to additional spending on housing.
Overall, the Exchequer Balance (adjusted for internal government financial transactions) recorded a €467 million improvement compared to the original forecast. This represents an improvement of approximately 0.12% of GDP, and while positive, should not materially affect the achievement of fiscal goals in 2017.  

Debt levels remain high

Looking at overall debt, the national debt at the end of 2017 was lower than projected and the debt to GDP ratio is decreasing. However, debt levels still remain high at approximately €200 billion.  

The Director of the Parliamentary Budget Office, Annette Connolly, commenting on the release noted the positive economic growth and stated “the recent economic growth and other positive economic indicators such as employment show that Ireland’s economy is recovering strongly from the economic crisis of the 2008-2013 period”.

The Director stated that “the threat of Brexit and exchange rate volatility remains a challenge to the Irish economy while high levels of private sector debt, the concentrated industrial base and the potential of the economy to overheat remain of concern to future economic and employment growth”.

Ms. Connolly also stated that “unlike one-off capital projects, current expenditure increases tend to be permanent and should not be funded by underspends elsewhere. Similarly, unexpected revenue from volatile sources such as Corporation

Tax should not be used to fund permanent expenditure increases or cut other taxes.”

Ms. Connolly noted that “Ireland’s gross government debt recorded over a fourfold increase between 2006 and 2017 and this reduces our ability to react to unexpected economic and fiscal events”.

The publication can be found on www.oireachtas.ie/pbo


For the attention of editors

Established in August 2017, the Parliamentary Budget Office is a key source of financial and budgetary intelligence for Oireachtas Members and in particular for the Dáíl Committee on Budgetary Oversight as it conducts ex-ante scrutiny on budgetary matters. It is an independent specialist unit within the Houses of Oireachtas Service.
The need for the office was identified by the OECD in its review of budget oversight by the Irish Parliament. The Oireachtas Sub-Committee on Dáil Reform, in its final report in May 2016, recommended that the office be established.
It has recently published briefing papers for members on the Supplementary Estimates, Local Property Tax, the European Semester and the proposed Rainy Day Fund. All these papers are available on the Houses of the Oireachtas website.