Bertie Ahern
Ceist:1 Mr. B. Ahern asked the Taoiseach the plans, if any, he has to revise the GDP statistics to take account of the black economy. [12575/96]
Ceisteanna—Questions. Oral Answers. - GDP Statistics.
The Central Statistics Office already makes adjustments to the income based measure of GDP to include estimates for the black economy. Where necessary, data are adjusted to ensure full coverage of incomes. For example, the basic data on self-employed profits are adjusted upwards to ensure that incomes are attributed to all self-employed persons recorded in the Labour Force Survey.
Black economy activity is also indirectly captured in other components of the GDP. For instance, wages are estimated on the basis of statistical surveys grossed to the overall employment totals reported in the LFS. This method implicitly captures earnings not reported to the tax authorities. In addition, farm incomes are measured indirectly using the national farm concept and are not dependent on the declarations of individual farmers.
The CSO is continuing to review its methodology as part of an ongoing EU programme aimed at ensuring the consistency and comparability of the GDP and GNP estimates of member states. However, any changes to the treatment of the black economy are not expected to give rise to significant revisions in the Irish national accounts.
There has been a great deal of international discussion of the major upward revision in the statistics of some Mediterranean countries, which has been widely reported in economic magazines. What effect will this have on us? I know the OECD report is due to be circulated in the next few days. More importantly, if the GDP does not reflect the revisions for the black economy, what is the percentage differential?
I agree with the Deputy that anxieties arise from the well publicised anomalies in the statistics of some EU countries. I suspect media attention prompted this question. The Deputy is quite right that there have been major revisions in the GDP figures of various EU member states to incorporate the hidden economy. For example, the Greek figures were adjusted by plus 20 per cent, according to the Financial Times, and those of Portugal by plus 15 per cent. Those newspaper articles were somewhat misleading. Some member states have significantly increased GNP levels as a result of improvements made to comply with the requirements of EU Directive 89/130/EC. However, these revisions incorporate a wide range of methodological changes.
Our figures are constantly under review. We have at all stages ensured the accuracy of our statistics. It is not expected, from the point of view of any revisions which will take place in the Irish national accounts, that there will be any significant increase. As I explained, we operate on two levels — direct adjustments and indirect adjustments using labour force surveys and any other data. On the basis of those figures, we are in a position to give a reasonably accurate gauge. It is calculated that the direct adjustments made for black economy activities at present amount roughly to 2.5 per cent, or 3 per cent at most, of GDP.
Can I take it that, following its examination of this matter, it is the belief of the Central Statistics Office that our black economy accounts for only 2.5 per cent of the overall economy? That is about one tenth of what has been found in other countries of similar size, character and behavioural patterns.
Yes, the belief of the Central Statistics Office is that the black economy accounts for 2.5 per cent, or at most 3 per cent of GDP. Other surveys and studies will not agree with that analysis. However, the Central Statistics Office has been characterised up to now by the precision of its forecasting of the performance of the economy and future projections. Its methodology is, by and large, well tried and tested. We do not claim it is infallible, but I imagine it is as good, if not better, than those of other countries, such as Greece and Portugal. I have every confidence that the CSO figure is accurate.
I have great regard for the CSO, having worked closely with it in a number of capacities as a Minister of State and as Minister for Finance. Unfortunately, the record does not show it has been able to get things right and it has had to make major adjustments, the last of which occurred when I was Minister for Finance. Unfortunately, the figure given here is not correct.
I am trying to gauge the effect of the black economy on the GDP and how this is reflected in official figures. This is vitally important as we move towards the next round of Structural Funds. The movement of our GDP figures in line with the Maastricht criteria will determine whether we will be totally or partially covered for objective one status. That will determine the money we will receive under FEOGA guidance, the CAP reform proposals, regional funds and the ESF. The figures for other countries reflect quite significant adjustments. Eventually, those will be reflected in the Irish figures.
I am trying in advance to ensure that the CSO and this House reflect realistically on the position. One would have to go to the man in the moon to get somebody to believe the black economy accounts for in the order of 2.5 per cent of GDP.
I know the Minister of State in replying to statistical questions cannot make up the figures but before the Commission, the OECD or the IMF do it for us, will he reflect on the true extent of the black economy? This is happening right across Europe. I cannot say what the true figure is but there is an air of unreality in the suggestion that the black economy accounts for only 2.5 per cent of GDP.
Before others reflect on the figure I ask the Minister of State to engage in a real debate. Otherwise, the CSO will be forced to make adjustments, as happened before, first in respect of the black hole and later in respect of profits repatriation. I know the Minister of State cannot change the figure——
There is a tendency to debate the matter.
——but I ask him to ensure this important matter is examined.
On the figure of 2.5 to 3 per cent of GDP I am talking about direct adjustments. I share the Deputy's anxiety about where this takes us in the next round of negotiations on the Structural Funds. We are all conscious of the 78 per cent figure. This is positive on the one hand but negative in terms of what we can expect to draw down based on the criteria used in the last round of negotiations. The Minister for Finance is engaged in dialogue with the European Commission on the criteria to be applied in the next round. They are considering whether the economy should be considered globally or regionalised to highlight the regional disparities and what adjustment mechanisms can be put in place to ensure we draw down the maximum amount.
On the methodology used, I know the Deputy as Minister had to acknowledge in the House that there was a major disparity in figures. This happens from time to time but we are satisfied the figures are reasonably accurate and, on that basis, the forecast we have given is correct. As the Deputy knows, nobody can gauge accurately the full extent of the black economy. One uses a range of barometers, surveys and data which are cross checked in trying to arrive at the most accurate figure possible.
Is the Minister of State aware that the general opinion is that the black economy is grossly understated? Has he looked at the methodology used in other comparable economies in measuring the size of the black economy? Perhaps if we used better methodology, we would get a more accurate figure.
I have already answered that question. The CSO constantly reviews the methodology used. We are doing everything possible to ensure there is a high level of synchronisation between what is happening here and in other countries. As Deputy Ahern said, we are obliged to ensure what we are doing here conforms with the norms in other countries from the point of view of accuracy.
I respectfully suggest to the Minister of State that if he gets a chance to get away from his onerous tasks as Government Chief Whip during the break, he should take the members of the CSO who reflect on the extent of the black economy on a day trip around the country and see if they still feel the same when we return in the autumn.
I am au fait with what is happening in the CSO whose staff I meet on a weekly basis. There will not be a need to hold a seminar with them during the summer.