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Fiscal Data

Dáil Éireann Debate, Tuesday - 18 October 2016

Tuesday, 18 October 2016

Ceisteanna (190, 196)

Róisín Shortall

Ceist:

190. Deputy Róisín Shortall asked the Minister for Finance if he will provide a detailed breakdown of the €155 million adjustment that was made to the carryover effect of budget 2016. [30621/16]

Amharc ar fhreagra

Pearse Doherty

Ceist:

196. Deputy Pearse Doherty asked the Minister for Finance the impact the increase of €155 million will have on the State's compliance with the structural deficit target for 2016 and the expenditure benchmark for 2016 (details supplied); and if he will make a statement on the matter. [30755/16]

Amharc ar fhreagra

Freagraí scríofa

I propose to take Questions Nos. 190 and 196 together.

At the time of the Summer Economic Statement (SES) it was estimated that there would be c. €1.0 billion in fiscal space for 2017. Amongst other things, this consisted of c. €340 million of carryover from Budget 2016 measures, of which income tax and USC accounted for approximately €292 million. In addition, it was also estimated that the non-indexation of the income tax system in 2016 would yield €300 million in 2016, with a positive carryover of approximately €100 million into 2017.

However, since the SES, the Revenue Commissioners have updated their method of estimating the first and full year costs of tax measures with effect from July 2016. This followed an analysis of the first year/full year apportionment of costs which was undertaken to ensure the estimated apportionment is as accurate as possible. Accordingly, from earlier this year, a larger proportion of the costs/yields of such measures are attributed to the first year, which results in a lower carryover cost in the second year. It should be noted that this does not change the full-year cost of a measure, only the allocation of that cost between first year and carryover costs. Therefore, as a result of Revenue's revised methodology, it is anticipated that more of the cost of the income tax and USC package from Budget 2016 is being incurred in 2016 than was previously estimated. In addition, the carryover cost from the non-indexation of the income tax system in 2016 has also been reduced.

Table 1 at time of SES illustrates the impact of the carryover effect of Budget 2016 measures and non-indexation of income tax system in 2016:

Description

2016 cost/yield

Full year cost/yield 

2017 carryover

Budget 2016 Income tax and USC measures

-€595 million

-€887 million

-€292 million

2016 Non-indexation of income tax system

+€300 million

+€400 million

+€100 million

Total Net effect

 -€295 million

 -€487 million

 -€192 million

 

 Table 2 Budget 2017 illustrates the impact of Revenue's revised methodology on the carryover effect of Budget 2016 measures and non-indexation of income tax system in 2016:

Description

2016 cost/yield  applying revised Methodology

Full cost/yield

revised 2017 carryover

Budget 2016 Income tax and USC measures

-€695 million

-€887 million

-€192 million

2016 Non-indexation of income tax system

+€330 million

+€400 million

+€70 million

Total Net effect

 -€365 million

-€487 million 

 -€122 million  

Impact on Fiscal Space

 -€70 million

-

 + € 70 million

Therefore, the tables above account for c. €70 million of the €155 adjustment to the carryover effect into 2017. The balance of €85 million is accounted for as follows.

At the time of SES, it was estimated that the non-indexation of income tax system in 2017 would yield €300 million in 2017 and €400 million a full year. However, applying Revenues revised methodology and taking account of the updated 2017 tax base and macroeconomic drivers, it now estimated that the non-indexation of the income tax system in 2017 would yield c. €385 million and €450 million in a full year, which accounts for the balance of €85 million in 2017.

The impact of these changes on the expenditure benchmark rule in 2016 was to increase the fiscal space used in the year by €70m as detailed in tables above. However as the Deputy will be aware, there is a significant buffer built into the calculation of Ireland's compliance with the expenditure benchmark in 2016, due to the treatment of the conversion of the AIB preference shares to ordinary shares as a capital transfer (expenditure) rather than a reinvestment of capital. This €70 million does not compromise compliance with the expenditure benchmark rule in 2016.

The impact of this €155 million on compliance with the expenditure benchmark for 2017 (as detailed in Box 1 page C.22 in the Budget 2017 book) gives an extra €155m of fiscal space, thereby explaining a significant portion of the €200 million change in fiscal space.

As regards compliance with the structural deficit target, the impact of the €155 million on the pace of improvement in the structural balance 2016 is marginal, at 0.02p percentage points of GDP. As such, it should have no material impact upon reaching the Medium Term Objective, that is, a structural deficit of -0.5 of GDP by 2018.

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