I thank the Chairman for giving me the opportunity to address the committee. With me today are Mr. John McCarthy, chief economist, Mr. Gary Tobin, head of our banking division, Ms Mary McSharry, head of corporate affairs, and Mr. Fiachra Quinlan, finance officer. Also joining us is Ms Marie O'Neill.
I will focus on the specific items on today’s agenda and give a brief flavour of some of the departmental performance and outputs in the period. The items on today’s agenda are chapters 1 and 22 from the Comptroller and Auditor General's report for 2017, the appropriation accounts 2017 - Vote 7, the finance accounts 2017, and the Comptroller and Auditor General’s special report on Ireland’s transactions with the EU in 2017.
The Estimate for the Department of Finance for 2017 was set at €40.8 million, that is, €39.5 million net of appropriations-in-aid available and the capital carryover of €200,000. The net outturn for 2017 was €32.5 million, leaving a surplus to be surrendered to the Exchequer of approximately €7.2 million. This surplus arose for a number of reasons. Recruitment did not progress at the pace anticipated, resulting in a pay bill underspend of approximately €600,000. The 2017 pay bill estimate was based on a headcount of 329 staff and, by comparison, the average number of staff during 2017 was 307. At the end of 2017, staff numbers stood at 310. Some €2.8 million of underspend occurred on non-pay administration expenses, €2.2 million of which was due to capital projects not proceeding during the year. There was also an underspend of approximately €3.6 million on programme related costs arising from lower legal and consultancy costs of €3 million during the year, mainly in regard to the shareholding and financial advisory division of the Department, savings of €500,000 in regard to the disabled drivers fuel grant scheme, given a total of 13,321 claimants received an average grant of €704 in 2017, and some €93,000 that was returned to the Exchequer relating to the disabled drivers medical board of appeal. We remain committed to seeking to minimise costs where possible, subject to achieving the best outturn for the State.
In terms of the Exchequer financial outturn, I draw the committee’s attention to the following key points. Tax revenues for 2017, at €50.7 billion, were up €2.9 billion, or 6%, year on year and €100 million, or 0.2%, above profile. In regard to income tax, which is the largest tax head, the performance in 2017 was solid, with receipts finishing the year 1.2%, or €236 million, below profile. However, this represents an annual increase of 4.4%, or €840 million. Corporation tax receipts in 2017 of €8.2 billion were €500 million, or 6.3%, above the budget forecast for that year. VAT returns saw a strong 7.1% annual increase in 2017 and were broadly in line with profile in that they were under by 0.5%, or €72 million. Total VAT collected during 2017 was €13.3 billion. The major consumption tax heading, excises, was just below profile by 1%, or €60 million, and €5.9 billion was collected. This represented a 3.7%, or €214 million, year-on-year increase. On the expenditure side, total expenditure, at a gross €58.5 billion, was €29 million above profile.
As the committee is aware, the Irish Fiscal Advisory Council was established under the Fiscal Responsibility Act 2012 to provide independent assessments of the Government’s budgetary plans and projections and to inform public discussion of economic and fiscal matters. A joint memorandum of understanding exists between the council and the Department underpinning the endorsement process of the macroeconomic forecasts prepared by the Department upon which the budget and stability programme updates are based. The council is funded from the Central Fund of the Exchequer. The funding ceiling for 2017 was €800,000.
The Comptroller and Auditor General’s special report presents an overview of the transactions, contributions, receipts and financial corrections relating to Ireland’s transactions with the EU during 2017. I welcome this report, which makes an important contribution to helping to improve understanding of how the EU budget works. My Department has engaged with the Office of the Comptroller and Auditor General on an ongoing basis over the past year or so on various issues related to the report, including the single recommendation that there should be annual reporting on a consolidated basis of all contributions and receipts from the EU. As stated in the correspondence over that time, I remain open to having a further discussion with the Comptroller and Auditor General on this issue and, in that regard, I have started an internal scoping exercise on how we might make progress towards greater consolidation. In due course, should we decide to report on a consolidated basis, all relevant Departments would need to be involved to assess fully the implications of the preparation of such a report.
I turn now to some departmental performance outputs in recent years. The Department completed its Statement of Strategy 2017-2020 and we continue to work towards achieving two broad goals: a sustainable macroeconomic environment and sound public finances, and a balanced and equitable economy, enabled by a restructured, vibrant, secure and well-regulated financial sector. The successful initial public offering, IPO, of AIB in June 2017 was the second biggest in the world at the time and raised €3.4 billion for the taxpayer. This has created a strong platform for the State to recover all of the money it has invested in AIB over time. In December 2017, Ireland repaid its remaining programme related loans to the IMF, together with the bilateral loans from Sweden and Denmark, early and in full. The Department published an action plan in 2017 under the Government’s strategy for international financial services. In 2017, 2,000 jobs were created under the strategy.
Climate change has been identified by the Department as a risk to the sustainability of the public finances and the health of the wider economy. In this regard, the Department supported the NTMA’s launch of Ireland’s first sovereign green bond on 10 October 2018. A rainy day fund has been established to protect against severe economic shocks. It will be seeded with an initial €1.5 billion contribution from the Ireland Strategic Investment Fund. The Government announced it is setting aside some of the historically high levels of corporation tax, with a contribution of €500 million per annum being provided for this year.
Since 2015, modest and sustainable annual increases in expenditure have been implemented. This approach, underpinned by growing and broad-based tax revenues, is targeted at delivering ongoing, sustainable improvements in public services and infrastructure. I am encouraged by the robust pace of the recovery in the economy, with GDP increasing by 6.7% last year. The increase in economic activity is broadly based and economic fundamentals are strong. Ireland remains one of the fastest growing economies in the EU and the recovery in the economy is seen most clearly in the labour market. Strong employment gains have driven a substantial turnaround in unemployment, which has fallen from a peak of over 16% in 2012 to a rate of 4.6% in the last quarter.
The prudent economic and fiscal policies implemented over recent years have placed Ireland in a stronger position, most notably through the improvement in competitiveness and growth in employment. As a result, Ireland continues to maintain its A grade rating with each of the three major credit rating agencies. However, we are now at or about what is termed full employment, and the economy is likely to be at, or close to, capacity. With uncertainty in the global economic and trade environment and the reality of Brexit, we face a different set of challenges in managing economic and fiscal policy in the coming years. The UK’s exit from the European Union will impose significant costs on the Irish economy. The question of how costly depends on the exact form that exit takes, whether orderly or disorderly. While the ratification of the withdrawal agreement remains the Government’s preferred outcome, it is not possible to assign an exact probability to the different forms of UK exit at present. In recognition of this, the broad strategy has been to assume an orderly exit, but simultaneously to plan for a disorderly exit. Brexit issues are mainstreamed into the Department’s work in all areas, including economic analysis, financial services and taxation.
Before concluding, I take this opportunity to express my appreciation to the staff at the Department for their ongoing work. It is only through their continuing commitment and dedication that we can deliver on our objectives. I thank the Chairman and committee for their attention and welcome any follow-up questions.