I will endeavour to move through it as quickly as I can. I thank the Chairman and members of the committee for affording me the opportunity to address them. With me today are John McCarthy, the Department’s chief economist, Emma Cunningham, Des Carville, Michael McGrath, Scline Scott and Laurna Cunningham. I will focus on the specific items on today’s agenda and try to keep my comments brief.
On Vote 7, I thank the Comptroller and Auditor General. We are always grateful to his office for the engagement and assistance we receive in ensuring the Department produces accounts that meet the highest standards in public accounting. As we know, this recognition is important and timely given that the office is this year marking its centenary. I offer my congratulations to the office on its marking of this milestone in public service.
The Estimate for the Department of Finance for 2022 was set at €43.98 million, or €42.9 million net of appropriations-in-aid. The gross outturn spend for the year was just under €40.4 million, or 8% under the available allocation. The Department carried €100,000 of its capital allocation into 2023 and, as a result, the Department surrendered over €3.4 million to the Exchequer. The end-year surplus arose for a number of reasons. There was an underspend of over €1 billion on consultancy and other services costs, an underspend on pay of €1.131 million and an underspend on the disabled drivers fuel grant scheme of €1.242 million. This scheme is demand led and is difficult to predict with great certainty.
With regard to the Exchequer financial outturn for 2022, I would draw the committee’s attention to the following key points. Tax revenues held up well, rising by €14.7 billion, or 21.5%, on 2021. The key drivers of the better-than-expected performance were income tax, VAT and, in particular, corporation tax. Income tax is the largest tax head, accounting for just under 37% of overall tax revenues in 2022. Receipts in the year were €30.7 billion, almost €4.1 billion higher than in 2021. The strong performance in income taxes was very encouraging. The economy in general, and the labour market in particular, performed well during the year, which was reflected in the tax returns. Corporation tax receipts once again over-performed, mainly due to high levels of profitability in a number of key sectors. Committee members will be aware the Department of Finance has consistently warned about the windfall nature of a significant proportion of this revenue. In budget 2024, we estimated that the level of corporation tax revenue at risk in 2023 could be in the region of €11 billion.
Corporation tax, CT, performance in recent Exchequer returns is notable in this regard. As the Deputies will know, this month, in particular, is a key month for corporation tax returns and we will have a clearer picture in the coming days. Due to the risks involved, the fiscal metrics published with the budget reflect the underlying vulnerability. The general Government balance for this year, adjusted for excess CT, or GGB*, is forecast to be a deficit of €2 billion. The robust economy was also reflected in VAT receipts, which saw an increase of over 20% on the previous year. On the expenditure side, total net voted expenditure was €72.8 billion, an increase of €1.3 billion, or 1.8%, on 2021.
Turning to the chapter on reporting European Union transactions, Ireland’s net contribution to the European Union in 2021 was just under €1 billion, with receipts of €2.5 billion and a contribution to the EU budget of €3.5 billion. Information and data for the year 2022 will be published in the coming weeks. The timing of receipts of EU moneys is contingent on a number of factors, such as project timelines. Accordingly, the Department does not forecast EU budget receipts annually. We anticipate, however, that Ireland’s receipts for the remainder of the multi-annual financial framework to 2027 will be in the range of €2 billion to €2.5 billion each year. The success of the economy over recent years has meant an increase in our contribution to the EU budget. Overall, our net contribution is likely to grow to around €2 billion by 2027. The Department will continue to report on EU receipts and contributions as soon as all relevant data becomes available.
Turning to the Ireland-Apple escrow fund, the fund was established under the terms of a formal agreement between the Minister for Finance and Apple pending the final outcome of legal challenges to the findings of a state aid investigation undertaken by the European Commission. The investment and management of the fund is jointly overseen by the Minister and Apple, with the Minister’s functions delegated to the NTMA. The financial statements for 2022, published on 5 July 2023, set out the net assets of the fund as at 31 December 2022 and totalled €13.37 billion. The €259 million reduction in the fund in 2022 consists of €253 million resulting from changes in the fair value of the assets and €6 million in operating expenses for investment management and custodian fees.
The Irish Fiscal Advisory Council is a key pillar of the fiscal architecture of the State. In particular, its work is crucial to the budgetary process, ensuring independent oversight of the macroeconomic forecast. The council was established under the Fiscal Responsibility Act 2012 and work is under way on the preparation of draft heads of a Bill to amend that. The proposed amendments to the Act will ensure the council can continue to play its part in the budgetary cycle as well as contribute to broader economic and fiscal debate.
I will now briefly discuss current economic conditions as well as future challenges. As committee members will know, 2022 began with a lot of optimism. The worst of the pandemic was receding, and although some post-pandemic inflationary pressures were evident, there was a generalised belief in a global economic rebound. Russia’s war of aggression against Ukraine tempered those expectations and added significantly to inflation, particularly via the energy markets. Central banks responded by rapidly increasing interest rates. Since July 2022, the ECB has increased its main refinancing rate by 450 basis points. Notwithstanding the economic shock of such a rapid change in monetary policy conditions, the economy has fared well. The number of people in work reached a record 2.7 million in the third quarter of this year. We have been at or near full employment for around 18 months. Monetary policy, however, acts on economic conditions with a lag. The cumulative effects of the increase in rates have probably not yet been fully felt, either in Ireland or globally. In fact, data suggest growth in Europe has slowed, and while the overall level of employment is still very high, the most recent Irish data suggest a softening in labour market conditions.
The country also faces more structural challenges. At the most recent national economic dialogue, attendees discussed these challenges within the framework of the four Ds - demographics, decarbonisation, digitisation and deglobalisation. Each of these phenomena poses an economic, fiscal or societal challenge. Taken together, they represent a complete transformation for both domestic and global economies. The senior management team and I will continue to work with the Government to address those challenges and ensure the economic progress that has been achieved over recent decades is sustained.
I thank the staff of the Department for the contribution they have made over the year under review. I also thank the Chairman and the committee for their invitation to address them, as well as for their attention. My colleagues and I are available for follow-up questions.
