17 Jul 2018, 17.30
The Parliamentary Budget Office has released its latest Quarterly Economic and Fiscal Commentary. This 44-page document, produced primarily for Members of the Oireachtas, highlights economic and fiscal areas of interest and concern for the first half of 2018.
- Continued strong growth in macroeconomic indicators in the first half of 2018, although significant downside risks persist; and
- Growth in tax revenue strongly exceeding profile, mainly due to increased Corporation Tax receipts. Excise duty is well under profile and down significantly year on year.
The Director of the Parliamentary Budget Office, Annette Connolly, said in reference to the broadly positive economic indicators:
“Strong macroeconomic and fiscal indicators should not lead to complacency. The proposed increased expenditure in Budget 2019 needs to be underpinned by sustainable revenue increases. Corporation Tax returns continue to over-perform profile. However, the volatility of this tax head suggests that these revenues cannot be relied on to fund ongoing spending commitments.
“The overruns in Health and the Justice Group of Votes indicate that Supplementary Estimates will probably be needed later in 2018. This has become an almost annual occurrence for these Votes and raises issues around expenditure management and the reliance on post-Budget increases in expenditure over and above those approved by Dáil Éireann.
Economic indicators show that the economy grew strongly in the first half of 2018. Figures relating to employment, unemployment, wages, retail sales, services and inflation for the first half of 2018 are consistent with strong economic growth. These indicators show a continued fall in unemployment, strong performance in the retail and services indices (despite abnormal weather conditions) and an increase in average weekly earnings over the quarter.
In the context of these developments, the Department of Finance has raised GDP growth forecasts u in the Stability Programme Update. The GDP growth forecast for 2018 was revised upwards from 4.0 percent to 5.6 percent, and for 2019 from 3.2 percent to 3.5 percent.
Both global and domestic downside risks persist in the Irish economy. This Commentary provides an overview of the main external risks facing Ireland including the UK exiting the European Union, global financial and monetary conditions, and changes to global economic demand. The main domestic risks include economic overheating and housing supply pressures.
Based on the Department of Finance’s Fiscal Monitor at the end of June 2018, overall revenue (excluding transactions with no general government impact) was €31.85 billion, which was €354 million (1.1%) above expectations.
To end-June 2018, tax revenues were just over €24.9 billion, €168 million (0.7%) above profile. This was mostly a result of over performances in the Corporation Tax and Income Tax headings. VAT, excise duties and stamp duties were below profile.
Up to end-June, overall expenditure (excluding transactions with no general government impact) equalled €35 billion, €346 million below profile but €2,611 million more than at the same point in 2017.
Overruns against profile in Health and the Justice Group of Votes are a cause for concern. Education and Skills and Employment Affairs and Social Protection, which were under profile at this stage last year, are slightly over profile at end-Q2 2018.
The Stability Programme Update has projected a General Government Deficit of €540 million in 2018. The overall trends on revenue (1.1% over profile) and expenditure (1% below profile) in the Fiscal Monitor would suggest this is achievable or could be bettered.
The PBO’s Quarterly Economic and Fiscal Commentary includes boxes which elaborate on various macroeconomic and fiscal topics, including:
Labour Force participation and employment rates
Oil price movements
Comparisons between fiscal forecasts 2014 and 2018
The composition of current expenditure
Future demographic projections and the effect on public finances
The Summer Economic Statement.
Read the full Commentary here.
For the attention of editors
Established in August 2017, the Parliamentary Budget Office is a key source of financial and budgetary intelligence for Members of the Oireachtas and in particular for the Select 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 OECD identified the need for the office 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 Notes for Members on the European Commission’s proposals on the Multiannual Financial Framework 2021-2027, the Civil Service Costing Facility, the Draft Country Specific Recommendations for Ireland, and a Briefing Paper on Potential Output, the Output Gap and Associated Key Issues for Fiscal Policy-making in Ireland. All these notes and papers are available on the PBO’s section of the Houses of the Oireachtas website.
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