Dáil Éireann díospóireacht -
Wednesday, 20 Sep 1995

Vol. 455 No. 8

Written Answers. - Consumer Expenditure.

Bertie Ahern

Ceist:

60 Mr. B. Ahern asked the Minister for Finance the reason for the apparent fall off in consumer expenditure so far in 1995; if he expects the original budget projection of private consumption growth of 5.25 per cent to be met; if not, the current official projection; and the budgetary and employment implications of this projection. [13270/95]

Minister for Finance (Mr. Quinn)

The forecast increase in consumer spending for 1995 contained in the budget projection was 5.25 per cent. This was consistent with a projected rise in the volume of retail sales of about 5 per cent. Retail sales account for only about 60 per cent of personal consumer spending and, crucially, do not include spending on services which tends to grow faster than spending on goods.

Strong growth in consumer spending was expected this year because of rising employment, continuing low inflation and higher take-home pay — all leading to a substantial increase in real disposable incomes. With relatively low and stable interest rates a modest fall in the personal savings ratio was also expected to boost consumption.

Retail sales data are available for the first half of the year and show a rise in the volume of sales of only about 1½ per cent. Clearly a considerable acceleration in sales is needed over the second half of the year if the forecast growth rate is to be reached.

There are a number of grounds for expecting that consumer spending will be much stronger in the second half of the year. Many of the measures taken in this year's budget which will boost real disposable incomes — e.g. social welfare increases, child benefit from September, "equal treatment" arrears etc. — are having their effect only in the later months of the year. Car registrations were very strong in July and August and full year growth in total car registrations should be in the region of 7 per cent, assisted by the £1,000 scrappage refund scheme. The increase in interest rates in the first half of the year may have adversely affected consumer sentiment but this should be largely offset by recent interest rate reductions. The strength of retail sales in 1994 was concentrated in the first half of the year so that stronger year-to-year growth in the second half of the year is likely. After declining in the first half of the year, consumer sentiment indicators have resumed an upward trend in May and June.

Despite these positive influences, the budget forecast growth of about 5 per cent in retail sales may not be fully reached. However, this does not necessarily mean that total consumer spending growth will be lower than forecast although its composition would be different. Stronger growth in spending on services — which is not captured in retail sales data — could compensate for lower than expected sales of goods.

This interpretation is supported by indirect tax inflows which, over the year to date reflect slightly weaker than expected Excise receipts, where VAT receipts are a little ahead of expectations. Over the year as a whole, overall indirect tax yields seem set to turn out above the budget target.

The strong growth in tourist numbers in the first half of the year and anecdotal evidence of a continuation of this over the summer months is unlikely to have been picked up in retail sales data, which would not capture the large services element of spending by tourists.

Buoyant payroll tax returns suggest that employment growth over the year to date is at least in line with budget-time expectations.