Dáil Éireann Debate, Tuesday - 18 October 2016
189. Deputy Róisín Shortall asked the Minister for Finance further to box one on page C.22 of the budget book, when each of the adjustments to the fiscal space calculation became known to his Department; and the reason these were not flagged as part of the pre-budget process with the budgetary oversight committee or to Opposition Deputies well in advance of the budget. [30620/16]
Amharc ar fhreagra198. Deputy Michael McGrath asked the Minister for Finance the way in which the fiscal space for 2017 moved from expected circa €1 billion to circa €1.2 billion on budget day in view of his previous comments that the fiscal space for 2017 could not change; and if he will make a statement on the matter. [30818/16]
Amharc ar fhreagraI propose to take Questions Nos. 189 and 198 together.
The Department of Finance produces the macroeconomic and fiscal forecasts underpinning Ireland's Stability Programme Update and the annual Budget process. Forecasts of fiscal variables including available fiscal space are routinely updated in these publications.
I have outlined previously that the fiscal space in 2017 was largely fixed but was subject to certain moving parts. In aggregate, revisions caused an increase in fiscal space of some €200m or approximately ¼ of a percent of the overall general government expenditure of €76.6 billion forecast for 2017.
The fiscal space available for Budget 2017 is reconciled with the estimate published in the SES in Box One of Chapter 3 in the Economic and Fiscal Outlook in the Budget book 2017, the details of which I will revisit here.
For 2017, the reference rates and convergence margins were set by the European Commission in its Spring forecast published in May. However, the GDP deflator used is an average of the Commissions Spring and Autumn deflators. As the Commission's Autumn forecasts will not be published until after Budget 2017, this necessitates using the forecast for the deflator from the Department of Finance's Autumn forecasts published on Budget day.
My Department presented an estimate of this deflator to IFAC and the Budgetary Oversight Committee on October 4th as part of the macroeconomic forecast that was endorsed by the Irish Fiscal Council on October 6th. The Budget deflator reflecting the impact of the 2017 budgetary package reduced fiscal space by €75m. The purpose of the Budgetary Oversight Committee appearance by my officials was to discuss technical aspects of the macro economic forecasts and not to discuss the fiscal situation or policy implications arising.
Revisions to the 2015 general government expenditure estimates were provided on a confidential basis to my Department following the first transmission of this data to Eurostat by the CSO on the 29th September. This data was subsequently published by the CSO in the Government Finance Statistics on October 10th. Revisions to the 2015 outturn have resulted in an update to the Department's estimate of the 2016 and 2017 expenditure base. Notably, the estimates of Gross Fixed Capital Formation (GFCF) were revised for the period 2012 to 2015. To avoid penalising spikes in government investment in GFCF, the European Commission allows this investment to be averaged over a four year period with the result that any changes to the levels of this investment will impact on available fiscal space.
As well as data from the CSO, revenue and expenditure surveys of the Local Authorities and other general government bodies are returned as part of the budgetary process, these also included updated forecasts of GFCF expenditure in 2016 and 2017 updating further the Department's estimates of the expenditure bases used. The combined effect of these changes to the estimates of GFCF expenditure in 2016 and 2017 has increased available fiscal space in 2017 by approximately €120m.
In my answer to the Deputy's other question today, I describe in detail the changes in fiscal space referred to in Budget Box 1 as Revised Carryover. As indicated, this has two elements the first being the impact of the revisions to the Revenue Commissioners methodology regarding the calculation of first year and full year costs of potential Budget tax packages. These changes took effect from June 2016 and the Revenue Commissioners pre-budget 2017 Ready Reckoner went live on 14th July.
The second element was the impact on the cost of indexation in 2017 on the revised tax base which was confirmed following the macroeconomic forecast endorsed by the Irish Fiscal Council on October 6th. These changes combined increased fiscal space by €155m.
