Dáil Éireann Debate, Thursday - 4 October 2012
8. Deputy Michael McGrath asked the Minister for Finance his views on the opinion of the Fiscal Council that economic growth forecasts from his Department are systematically biased upwards; his plans to improve forecasting models with the Department; and if he will make a statement on the matter. [42287/12]
Amharc ar fhreagraLast year, the Government established a Fiscal Advisory Council which is to, inter alia, assess and report periodically on the official macroeconomic and budgetary forecasts. The Council issued its third Fiscal Assessment report in September 2012. A large part of the report was devoted to assessing the appropriateness of the economic and budgetary forecasts of the Department of Finance. As the Council notes, economic and budgetary forecasts are subject to a degree of uncertainty and this is reflected in the wide range of projections and ongoing revisions. However, the findings of the Council are that the forecasts produced within the Department of Finance show no sign of optimism bias. This is one of the key conclusions of the report, and is evident for all to see. To quote from page 15 of the report, "....... the official forecasts do not exhibit evidence of optimism bias."
The Fiscal Advisory Council notes that forecasts of the timing and magnitude of the recovery have been revised down by my Department in recent years, but also notes that similar revisions have been made by all institutions which forecast the Irish economy. The recovery in the global economy - on which we rely for an acceleration of export growth - has, in recent years, proved weaker than initial expectations of a number of international forecasting agencies such as the IMF and OECD.
I am sure the Deputy is familiar with the March 2011 report on Strengthening the Capacity of the Department of Finance, carried out by Canadian expert Rob Wright. It recognised that the Department’s forecasting record was as good as any other institution engaged in the process. Nonetheless, the Department has taken steps over the last eighteen months to improve its capacity in the economics field. New graduate staff with economics qualifications to MSc level have been recruited and a separate Economics Division has been set up.
My Department will publish its next set of economic and fiscal forecasts later this month to allow an informed debate in advance of December’s Budget on the fiscal space the government will be operating within.
