Vol. 928 No. 2
1. Deputy Michael McGrath asked the Minister for Finance the status of the work of the working group in his Department on motor insurance costs; when the recommendations of the working group will be published; the timeline for implementation of the recommendations; and if he will make a statement on the matter. [34249/16]
I again raise the issue of the spiralling cost of motor insurance faced by motorists generally and the business community. Will the Minister of State provide an update on the work of the working group that is examining the issue? When will the recommendations be published? Will there be a timeline for their implementation?
The cost of insurance working group which I am chairing is examining the factors contributing to the increasing cost of insurance. The working group brings together all of the relevant Departments and offices involved in the process. Its objective is to identify immediate and longer-term measures which could address increasing costs, while bearing in mind the need to maintain a stable insurance sector. The initial focus of the working group is on rising motor insurance premiums.
The core areas to be examined by the working group in this first phase are the motor insurance sector generally, at present and in recent years; the effects of legal costs and litigation processes on insurance costs; the current claims compensation arrangements and the cost of claims; insurance data and information; the impact of accident rates; the impact of unlawful activity on the insurance sector; and other market issues.
The cost of insurance working group has met nine times to date and will continue to meet until the end of the year. The work is being progressed through four subgroups, which have been meeting weekly since their establishment on 1 September 2016. The consultation process is ongoing by both the working group and the subgroups. The stakeholders include Insurance Ireland and individual insurance companies; the Irish Brokers Association; AA Ireland; the Consumers' Association of Ireland; the Law Society; the Bar Council; the Irish Road Haulage Association; the Car Rental Council; the National Transport Authority; and Tiómanaí Tacsaí na hÉireann. In addition, I have invited submissions to the working group from all interested parties to insurance@finance.gov.ie.
At the end of October 2016, the working group provided the Minister for Finance with an initial set of emerging recommendations. The Minister has considered these recommendations and I have discussed them with him. Since then, the working group has been working to finalise the report and is developing an action plan to enable the relevant Departments and offices to commence the implementation of agreed priority actions. The report and action plan will detail any legislative or regulatory changes that may be required and will include a detailed timeline for implementation.
From the emerging recommendations presented to the Minister for Finance and the consultations carried out since they were presented, it is likely that the report will address nine key areas and will feature in the region of 40 recommendations.
I thank the Minister of State for his response and acknowledge that considerable work has been done on this issue in recent months. I also commend him on his commitment to tackling this serious problem. When will Deputies have sight of the recommendations? The Minister of State indicated the senior Minister was provided with an initial set of recommendations at the end of October. When will we have these recommendations and when will the overall report be published in order that Deputies can get a sense of exactly what is being recommended? When does the Minister of State expect to begin the process of implementing the recommendations?
I note that figures produced by the Central Statistics Office today indicate that motor insurance costs have decreased by 8%. This could be an anomaly as it is difficult to read much into one month's data. Nevertheless, I hope it is a straw in the wind which indicates that change is coming. It is important that the Minister of State makes a statement that there will be change and clear and concrete recommendations will be produced to deal with the root causes of spiralling motor insurance premiums. I would be grateful if he responded on the specifics around timing.
I thank Deputy Michael McGrath for acknowledging the work being done by the working group. A very committed group of people has been working behind the scenes and spending a great deal of time trying to address this serious problem.
There are approximately 40 recommendations covering nine areas. These were presented to the Minister with minutes of the meetings and some background information on the consultations that have taken place. Significant work and research are being done to flesh out the recommendations and the reasons we are proposing them. We are trying to put together timelines.
When I met the joint committee at the beginning of September, I gave a commitment to appear again, once the recommendations had been submitted to the Minister, to explain the thinking behind them and ensure the committee was made aware of what we were hoping to achieve. I also want to hear about the committee's hearings on the issue and ensure everyone in the House is on the same page in order that proposals for regulations or legislation can be progressed as quickly as possible. With this in mind, as soon as the joint committee is ready to engage on the issue, I will be pleased to explain to it each of the recommendations and outline the thinking behind them.
The intention is to have the report published in December. We have already put out the framework for the report, if one likes, and substantial research has been carried out by the subgroups. We are getting there and our priorities now are to ensure the various stakeholders are in agreement on what we are seeking to achieve and to set out a detailed timeline. Not every measure will be implemented immediately and some will take time. We need to work to a specific timeline and set targets in order that we can meet them.
Some of the recommendations will be to expedite work that is already under way. For example, it is already possible to roll out automatic number plate recognition technology but the issue for us is to ensure its roll-out is expedited. Another recommendation will be on expediting the review of the Personal Injuries Assessment Board. Some of the recommendations will be in areas on which work has already begun. It is a matter of tying the work together.
While the CSO data are helpful, we need to see a trend.
I accept the Minister of State does not propose to publish the recommendations now but will he give us a sense of the broad areas they cover? Will legislation be required to deal with some of the issues? Most important, having examined this issue in detail in recent months, does the Minister of State expect the recommendations, if implemented, to make a difference in terms of the premium increases people have experienced in the past three years or thereabouts? The litmus test will be whether we can stop these increases and bring some degree of normality back into the market. I expect the recommendations will deal with many of the key issues around the data gap, awards, fraudulent and exaggerated claims and the role of legal costs and court awards generally.
Will legislation be required for some or many of the recommendations? Will their implementation make a difference in respect of premiums?
As the next question is on the same issue, I ask the Minister of State to respond to Deputy Michael McGrath when replying to Question No. 2 as the time for Question No. 1 has elapsed.
2. Deputy Pearse Doherty asked the Minister for Finance when he will receive the report on the cost of motor insurance (details supplied); and the steps he will take, legislatively and through regulation, to enact its recommendations. [34089/16]
This question is on the same issue as the previous question tabled by Deputy Michael McGrath. I acknowledge that there are some indications that the cost of premiums is beginning to reduce. A monthly reduction of 8.2% will be helpful, although overall premiums have increased over the year. The reduction also comes on the back of steep increases in previous years.
The Minister of State noted that the 40 recommendations cover nine key areas and he also provided some statistics. What is the definitive timeframe for publishing the recommendations submitted to the Minister? When will they and the related documents be published? When will a timeframe be provided for the implementation of the recommendations?
I have an official reply to Deputy Pearse Doherty's question, which is identical to the reply to the previous question. If we take the reply as read, I will speak to the Deputy's questions. If I may, I will first respond briefly to the issues raised by Deputy Michael McGrath a moment ago.
We have to make a difference in this area for businesses and consumers and to have a competitive and functioning economy. It is important that the reforms will be across the insurance industry sector. Legislation will be required in some areas, while in others we will need to review existing legislation to ascertain whether certain sections of Acts that have been in place since 2004 have been commenced. We need to do different things and, again, that speaks to the consensus I hope to achieve to enable us to expedite the legislation and reviews.
We need to deliver clarity and transparency for consumers and the market to ensure they can be confident when seeking insurance cover that it will be provided at an appropriate price and will stand. They must also be able to see how increases in premiums are calculated and have more power, not only to shop around but also to understand and have faith in the operation of the market. They should not feel they are being unfairly penalised for things they have not done. This speaks to reforms that need to be made in the areas of claim costs, award amounts and the resolution processes currently in place.
To respond to Deputy Doherty's questions on a definitive date for publication, we have 40 recommendations and I wanted to wait until I had spoken in detail to the joint committee on each of them. I do not want one or two recommendations to find their way into the public domain as this could give the impression that we are only considering one issue and ignoring others. I will be more than happy to circulate to the joint committee the papers submitted to the Minister at the end of last month and I can do so immediately. I will also be more than happy to discuss them with the joint committee.
We indicated previously that the report would be published in December and I do not see any reason for missing that deadline. Much of the work for the report has been done but it has not yet been submitted to the Minister. We sent the recommendations to the Minister and added some context. I will also be able to speak to the context in the committee. Members will have a detailed report in December, which provides recommendations and an action plan with a detailed implementation timeline.
I welcome the Minister of State's engagement with the joint committee. The work of the committee has been helpful in creating a broader understanding and delving into the issues surrounding the substantial increase in insurance costs. I ask the Minister of State to provide the joint committee with the documents to which he referred at the earliest opportunity in order that we can have a full and rounded discussion prior to the publication of the final report.
I would welcome if that could take place at an early opportunity. The Minister of State knows my position about the motor insurance industry and I have made a submission on it. There are several actions that can be done simply. For example, the Department plans to improve the motor insurance compensation framework. This should be implemented as soon as possible. This is one of the issues referred to us both privately and in the committee by the industry that will give some certainty.
There is also legal services legislation that allows for regulations that will give a greater choice to the claimant in terms of solicitors. The courts Act 2004 needs to be reviewed to see if it is contributing to costs in the sector. Transparency, the buzzword, needs to be central to whatever recommendations the Minister of State will make. From our point, we will certainly work with the Minister of State in the recommendations. We hope they will be substantial enough to deal with a reversal in the increases in premiums, rather than just sustaining them.
The committee has been helpful. The work of the working group has been in private whereas the finance committee, embarking on a series of hearings, gave an opportunity for the Oireachtas to interrogate some of the information in the public domain. Again, it may have been put out in a particular fashion or perhaps to speak to a particular point. The committee has allowed the public to see the complications around this and how different voices in the media may not reflect the underlying problems.
I would like to appear at the committee next week if possible, but I have not had a chance to raise that with the Chair. The Finance Bill is continuing on Committee Stage next week. The Deputy is right, however, that the earlier the better.
On the report published by the Government earlier this year on motor insurance compensation, I have engaged with industry on several occasions already on that matter. We are awaiting the outcome of a particular court case as well. A further piece of work has to be done and there is a recommendation which speaks to that.
In so far as the Civil Liability and Courts Act 2004 is concerned, there are several measures to review certain sections in the legislation but also other sections which have not commenced. Transparency of data is key. It is important for a healthy competitive sector and combatting potential insurance fraud, as well as being important for confidence for consumers. The working group has been trying to get certain data from the industry so as to drill down and get a better understanding. Even that has proved difficult. We are continuing to work with industry to ensure there will be no delay in implementing certain registers, frameworks or databases. These will only serve the public interest and already exist in other jurisdictions such as the UK. There should be no problem in doing them here as well.
In so far as the reversal of premiums is concerned, I have been communicating to industry from the working group that we want to give as much certainty as possible to the sector as to the Government's plans. It is hoped that even before recommendations come online, this certainly will help them to at least put a stop to increases in premiums. Then, as the recommendations work their way through, we should see some of those costs come down.
I welcome that and, hopefully, we will get it into the committee next week and the working group's recommendations will deal with the problem we are facing in the here and now. One of the first campaigns I was involved in outside of Sinn Féin was with the Motor Justice Action Group because when I was a young motorist I was suddenly charged £3,500 for insurance. This is a cyclical problem and we need to ensure the working group just does not stop working after this process is complete. We need a permanent body which will continually monitor this. Such a body will also need to ensure tweaks in other areas are made to ensure the cycle does not emerge again.
One will hear from the industry about how the insurance sector in Ireland works in super cycles, which is incredibly damaging for the economy. The ability for super cycles to play out again in the future is limited. We do, however, have a recommendation which will speak to a more long-standing commitment in terms of a commission which will keep us under constant review. The working group will continue to sit for at least the rest of next year. We need to ensure the recommendations are being implemented to the timeline that we will have. Once we have done our report on motor insurance, we will move into other non-life areas, which are issues of concern for the business community.
3. Deputy Michael McGrath asked the Minister for Finance his Department's current assessment of the impact of Brexit on the economy; his views on whether Brexit is already having a significant impact on certain sectors of the economy; if he has further plans not yet announced to deal with the issue; and if he will make a statement on the matter. [34250/16]
The purpose of this question is to get the Minister's assessment of the impact so far of Brexit and the likely impact on the Irish economy going forward. The joint ESRI-Department of Finance working paper on the issue is helpful and interesting. Will the Minister put in context what its findings would mean for the economy? It found, depending on the nature of the post-Brexit trading relationship, that the level of output in Ireland will be 2.3% to 3.8% below what it would otherwise be projected over a ten-year period or 40 quarters. What is the current assessment of Brexit's impact now and in the future? What can we do to mitigate the negative effects of it?
The UK referendum on EU membership presents an important challenge for the economy.
My Department has been to the fore in producing and funding relevant analysis on Brexit. Previous outputs include a scoping study produced by the ESRI last year under the joint research programme, initial short-term estimates published in the summer economic statement, an analysis of the possible sectoral and regional impacts of Brexit arising from Ireland's trade relationship with the UK, published with budget 2017, and a joint research paper with the ESRI modelling the medium to long-term macroeconomic impact of Brexit.
The medium to long-term analysis shows the impact on Ireland will be significant. Looking at the effect ten years after a UK exit, in a WTO outcome the level of Irish GDP could be almost 4% below what it otherwise would have been in a no-Brexit scenario, with most of the negative GDP impact coming in the first five years. The level of employment, relative to a no-Brexit world, is also expected to be 2% lower in the same scenario and unemployment 2 percentage points higher. I would stress that these model results are based on a no policy change assumption.
The sectoral analysis - published by my Department on budget day - shows that those most exposed to the UK are generally comprised of indigenous enterprises that are small in scale, are concentrated in food and manufacturing industries, have relatively low profit levels and have a disproportionate concentration of employment in regional and rural labour markets. Budget 2017 laid out an extensive range of policies targeted at these exposed sectors, including the retention of the 9% VAT rate and the extension of the foreign earnings deduction and the special assignee relief programme until end 2020.
The sharp appreciation of the euro-sterling bilateral rate is perhaps the most significant short-term economic impact arising from Brexit. Indeed, the current bilateral rate and its recent evolution will pose significant challenges, particularly for parts of the exporting sector and areas sensitive to cross-Border trade. For instance, merchandise exports to the UK have fallen by almost 4% since the referendum. Consumer prices are also beginning to reflect exchange rate developments falling by almost 1% since June.
The Government has put in place a number of arrangements to ensure a whole-of-government response to Brexit, including a new Cabinet committee, which is overseeing the overall Government response to Brexit.
There seems to be a sense that growth in the economy is slowing. The Department of Finance downgraded the growth forecast for next year, Brexit-related or not. We are hearing concerns from several different sectors, the retail sector in particular. Evidence has shown that the traffic flows north of the Border have increased, for example. Obviously, there is serious concern in the food sector and in the agriculture area generally. These are serious concerns.
The report from the ESRI and the Department of Finance concludes that the potential long-term impact of Brexit on Ireland is severe with up to 4% less output than we otherwise would have. That has knock-on consequences for Exchequer receipts, employment and investment in the economy. We need to have a credible and coherent plan to deal with the fallout from Brexit. We still do not know what the post-Brexit trade relationship will look like. Clearly, the consequences are serious. I certainly get the sense that we are beginning to detect the signs of those consequences.
If there was never a Brexit, the economy would still be slowing down somewhat now towards a sustainable growth rate. When one comes out of a recession, there is a lot of spare capacity in an economy. When it begins to improve, growth rates are beyond the sustainable growth rate. When there is such spare capacity in the economy it grows more rapidly than it would be expected to grow on average.
Now that it is settling back, that factor exists in any case. We predicted around budget time that our sustainable level of growth would be 3.25% or 3.5% out for the five years of the forecasting period. On top of that, we took 0.5% off the growth rates for 2017, directly because of Brexit. That was built into the summer economic statement. We maintained that position at budget time.
There are figures published today by the European Commission showing a very marginal reduction of 0.1% for 2017, or a reduction from 3.6% to 3.5%, I believe. It is showing a similar increase for 2018. It is all very marginal, however, and effectively it is in agreement with the figures we have been working on running from the budget.
Apart from analysing the potential fallout, it is very hard to make provision until we know where the United Kingdom will land in regard to its future negotiations with the European Union. The analysis to which the Deputy referred considers what would happen under the Norwegian arrangement, the Swiss arrangement and the World Trade Organization arrangement. The World Trade Organization arrangement, with the bureaucracy and possible tariffs that would arise from it, is the most extreme. It is almost 4%. As the Deputy said, however, it is over 40 quarters - 40 quarters from the British exit. Therefore, it is about 12 years down the line. If one assumes a rate of 3% per year and compounds it for 12 years, there is probably an increase in GDP of approximately 40%. One takes almost 5% or 4% off that. That is the impact but it is considerable. The strongest impact is in the first five years rather than in the later period.
It is considerable. The projections are based on certain assumptions. It could turn out better but, equally, it could turn out to be worse. What ongoing work is taking place within the Department to deal with the fallout from Brexit? The Department of the Taoiseach and Department of Foreign Affairs and Trade are taking the lead role in terms of managing Ireland's response and the negotiations. However, within the Department of Finance, which is the economic engine, what work is being done to make plans and examine scenarios and contingencies? What feedback is the Minister currently receiving? Has he any concerns that there is a slowdown in growth that is Brexit related? Certain sectors are feeling the heat already, including the retail and agrifood sectors, in addition to SMEs in general that are dependent on exporting to the UK market.
There is already some reduction in business confidence because uncertainty always produces that. There is some impact on exposed horticultural industries, such as the mushroom production industry. We are all aware of that. It is affecting other food exporters also. One must decide how the United Kingdom will replace its imports from Ireland on the agrifood side. Since the devaluation is across the eurozone and against other countries, the United Kingdom does not seem to have many alternative sources of supply. There could be a change of behaviour, however. To put it very simplistically, the British housewife, instead of buying steak once a week, might buy chicken. Then one would have a substitution effect that would affect exports of Irish beef to the United Kingdom. We are trying to assess these results. In addition, there will be a price change. There has already been an analysis in the United Kingdom referring to retail prices increasing there in the order of 4% to 5%. This would require a renegotiation of contracts, when the contract period runs out, by Irish exporters with a view to achieving an increase in price.
It is very uncertain and it is having an effect. It is too early to quantify it. We are taking a number of steps. As the Deputy said, the Department of the Taoiseach is taking the lead. A particular piece of work I am interested in involves our examination of the possibility of developing an export guarantee arrangement for vulnerable Irish industries. I hope to make an announcement on that before Christmas and brief the Deputy thereon.
4. Deputy Paul Murphy asked the Minister for Finance his views on the reports in the press (details supplied) of repeated lobbying by a former Deputy to NAMA in regard to his business partners' interests in properties controlled by NAMA and the allegation in those reports that those business relationships were not declared to NAMA; and if he will make a statement on the matter. [34251/16]
What are the Minister's views on a series of articles by Mark Tighe in The Sunday Times on former Fine Gael Deputy Brian Walsh lobbying repeatedly on behalf of his business partners, particularly Mr. Liam Mulryan and Michael Finn, over a period of close to three years without making any disclosure to NAMA of his business relationships with those two people? Does the Minister agree that it is entirely inappropriate, at the very least, and possibly a breach of the NAMA Act?
The newspaper article that Deputy Murphy refers to includes a reference to a specific property. I am informed that NAMA was not the owner or seller of this property. The sale was managed by a receiver and, in accordance with NAMA's policy, was fully openly marketed and sold to the highest bidder.
The article also includes reference to correspondence between NAMA and a former Deputy about this property. Public representatives regularly engage with NAMA on both policy and constituency-related matters. NAMA welcomes this engagement. Such communication is in accordance with section 221 of the NAMA Act, which contains explicit provision for individuals to communicate with NAMA when acting in their personal capacity or in the course of their professional employment.
The key test for NAMA in the context of section 221(1) of the Act is whether or not a representation is designed to confer a material advantage on one party at the expense of taxpayers in general. Based on its engagement with all public representatives to date, including the engagement referenced in this case, NAMA does not believe there has been any instance that could be considered a breach of section 221(1). Any individual who has information on a breach of the law is required under the Criminal Justice Act to bring this information to the Garda.
I referenced the letter to NAMA from Mr. Brian Walsh on headed Deputy notepaper raising a question about the sale of land that was subsequently put on the open market and sold to Mr. Liam Mulryan. In the letter, he urges NAMA to take measures to rectify the situation in a manner that benefits the taxpayer. Elsewhere, he refers to being contacted by "a concerned member of the public", despite there being no evidence of any such thing. What he does not mention in the letters — surely the Minister agrees this is a problem — is the fact that he was previously an employee of Mr. Mulryan, nor does he mention that he has owned at least six properties with Mr. Mulryan. He does not mention the fact that he was a director of Mr. Mulryan's companies. He has many other business associations. He is clearly a long-standing business associate of a guy who ended up owning the property partly as a consequence of his intervention. Does the Minister not see the problem here?
I remind the Deputy that he should be careful about naming private individuals outside the House, even if they are mentioned in the media.
As the Deputy is aware, Deputies and others inside and outside the House frequently contact NAMA and are entitled to do so under law. As a matter of fact, NAMA circulated the number of a dedicated helpline and a dedicated email address for Deputies through which they can obtain information from NAMA. It is the practice of many Deputies to get such information on behalf of their community or constituents.
The former Deputy identified in the newspaper article did not inform NAMA of any business relationship with any parties on whose behalf he had made representations. NAMA has no way of knowing the nature of any relationship between public representatives and their correspondents. Any public representative will have a broad range of relationships with constituents and other parties and will make representations on behalf of these parties whether they are personally known to them or otherwise. I am informed that NAMA receives hundreds of written and direct representations from national politicians from across the political spectrum each year on a wide range of NAMA-related topics, including policy- and strategy-related questions and queries on constituency-related matters, including sales processes run by NAMA debtors and receivers. NAMA welcomes this engagement. It enables public representatives to hear the factual position on any given matter directly from NAMA rather than through third parties, who often have a vested interest.
It is important that elected representatives feel free to engage with NAMA. NAMA is a public body delivering on a public mandate set by the Oireachtas, and members of that Oireachtas have to be able to engage directly with NAMA. None of the representations that NAMA has received from public representatives or the engagements it has had with them falls within the category of lobbying and none is in breach of the NAMA Act. That is the information I have been provided with.
I have land records showing that Mr. Brian Walsh and the other person in question co-own six properties. I have other information from the Companies Registration Office, CRO, showing their relationship. I have still other information on common loans that were taken out. They have a business relationship. I am able to provide this information to the Minister and he is aware that a business relationship exists.
Similarly, a business relationship existed with another man whom I will not mention and who had a relationship with NAMA regarding a hotel. The former Deputy, Mr. Walsh, made representations to the effect that it was likely to result in a loss of revenue for NAMA and the incurrence of unnecessary legal fees and that this was a matter of public interest. Again, he did not disclose the fact that he had an ongoing business relationship with the man.
Given the fact that the Minister now knows about these matters, does he not view them as a problem? Given the fact that NAMA knows, since the issue is in the public domain, does it not have a legal responsibility to go to the Garda about it?
Several Deputies make representations to and inquiries of NAMA. NAMA does not require them to state what relationships they have with the people seeking the information or whether they are seeking it personally or on behalf of others. Deputy Paul Murphy might be right - I do not know whether he is - regarding the information that he is placing on the record, but there is nothing in what he has said that changes the position that NAMA does not believe that anything illegal happened, welcomes inquiries from Deputies and others and provides the information that is available to it as long as there is no attempt to confer a benefit on a particular person at the expense of the taxpayer.
5. Deputy Thomas P. Broughan asked the Minister for Finance if he will report on the latest Exchequer returns, in particular those areas that are falling short of his Department's targets, such as VAT receipts and income tax receipts, including the universal social charge; and if he will make a statement on the matter. [34090/16]
I note from October's Exchequer returns that income tax is approximately €94 million, which is 0.6% below target, and VAT is €286 million, or 2.6% below target. Is the Minister concerned by these figures, given the fact that these taxes together comprise two thirds of revenue? Are we already beginning to see the impact of Brexit on domestic demand? Are the budget 2016 and budget 2017 figures beginning to unravel?
The end of October 2016 saw the Exchequer record a deficit of €2.429 billion compared with a deficit of €2.184 billion in the same period last year. The €245 million increase in the deficit is driven by an increase in voted expenditure, an expected reduction in non-tax revenue and a decline in banking-related receipts relative to the same period last year. All of these are partially offset by increased tax receipts.
At the end of October, cumulative tax revenue of €36.7 billion had been collected. This is 1.7%, or €613 million, ahead of target and up 4.7%, or €1.651 billion, on the same period last year. Corporation tax and excise duties are ahead of profile while VAT and income tax are slightly behind profile.
Income tax receipts at the end of October were broadly in line with profile, down just 0.6%, or €94 million, against target. However, receipts were €577 million, or 4.2%, higher in year-on-year terms. This slight underperformance against profile is due to a combination of weak DIRT receipts and an underperformance in the PAYE element of USC. Reflecting lower-than-expected interest rates, 2016 DIRT receipts are approximately €130 million below profile, which is larger than the amount of underperformance in income tax in the year to date.
The PAYE element of USC is approximately €195 million, or 7%, below profile. This is due to a combination of factors. First, the final USC yield for 2015 was almost €100 million lower than expected at the time of budget 2016, meaning that the base for the 2016 forecast yield was too high. Second, the Revenue Commissioners updated their method of estimating the first and full year costs of new tax measures with effect from July 2016. An analysis of the first year and full year apportionment of costs was undertaken to ensure the estimated distribution was as accurate as possible. As a result, more costs-yields of new income tax measures are now attributed to the first year, which results in a consequential lower carryover cost in the second year. While the full year costs of the USC tax measures introduced in budget 2016 did not change, an increased allocation of that cost to first year means that more of the costs are being incurred in 2016 than was previously estimated.
Additional information not given on the floor of the House
As the final DIRT due month has now passed, it should have no further effect on income tax receipts. Given the relative predictability of PAYE receipts, the key open question relates to receipts from the self-employed sector. November is the most important month for these and a strong performance should ensure that the overall income tax target for the year will be achieved.
While VAT receipts are up nearly €475 million in year-on-year terms, they are running approximately €285 million, or 2.6%, below profile. This is primarily due to the fact that, while retail sales have been strong in the year, with retail volumes up 3.8% year-on-year, the 1.9% increase in the value of retail sales, the base upon which VAT is driven, is much more modest, reflecting the fact that there is little inflation in the economy.
Regarding the smaller taxes, stamp duties are behind profile while the capital taxes are ahead. The tax revenue performance has been solid through the first ten months of the year and we are currently on track to achieve the overall tax revenue target of €48.1 billion set out in budget 2017.
I am aware of the part that October plays in VAT in accounting terms. Given the fact that the Government is €300 million behind profile, is there any indication that cross-Border trade and the fall in sterling are affecting VAT returns? Are we already beginning to see the impact of Brexit?
In terms of income tax and USC returns, which are almost €100 million behind profile, two strong months will be needed in November and December. Given the grave uncertainties of Brexit and the Trump election, will the Government's 2016 budgetary projections be a close-run race? To some extent, the base figures for 2017 that were presented a few weeks ago are beginning to unravel. I believe it was Deputy Calleary who told the House this morning that the recommendation in the Garda dispute could cost €50 million. The Minister has conceded that. Are we beginning to see signs of a faltering economy and problems for the Minister's budgets?
No, we are not. There are swings and roundabouts in every month's Exchequer returns. Some taxes are up, some are down. The taxes received by the Exchequer in the first ten months of the year are €613 million ahead of forecast. We made additional expenditure commitments during the summer, including approximately €500 million for health and some extra money for justice, flood damage, roads, the schools summer repair scheme and so on. The Christmas bonus, which was not provided for in the previous budget, is also a factor. We need a further €250 million to €300 million or so to pay for the extra expenditure committed, but we are confident that will happen in the last two months of the year. November is the month in which self-employed persons make their returns and corporation tax is finalised for most companies. We expect strong months in the time remaining. There are no signs of the decline that the Deputy suggested, but we are always watchful, which is especially the case in light of Brexit and various international events.
The Minister has committed to extra spending of approximately €550 million. However, does the apparent slow-down in revenue across a wide stretch of the tax base not mean that the Government's end-of-year figures will be tight if it wants to meet its deficit target? The base for budget 2017 may be significantly changed as a result of the hoped for settlements in the Garda and teacher disputes, the beginning of the plan to replace the Lansdowne Road agreement and pay restoration.
We are depending heavily on corporation tax, which was the subject of much discussion in the budget committee. Is the sustainability of this situation not a concern, given the question of tax inversions and the fact that the Government is beginning to implement the base erosion and profit shifting, BEPS, programme?
I do not agree with the Deputy's analysis. Tax flows are strong at €630 million ahead of budget and the monthly forecasts provided by Revenue and the Department of Finance. We need a strong last two months to fulfil the commitments made on the expenditure side, but we expect to be in a position to do that. As to next year's base, approximately €2.5 billion in taxes will be collected in 2017 above what will have been collected this year.
On the question of corporation tax, the ongoing international reforms, which are driven by the OECD, are more likely to enhance the tax take in Ireland than reduce it. This has been the experience in 2015 and 2016.
