Parliamentary Budget Office publishes Q3 Economic and Fiscal Commentary

The PBO’s Quarterly Commentary updates Members on economic and fiscal developments, highlighting areas of interest and concern. In addition, the PBO uses the commentary to bring associated issues to the attention of Members. This Quarterly is published just before the Minister for Finance and Public Expenditure and Reform announces Budget 2019 and is framed in that context. The PBO also recently published its Pre-Budget 2019 Commentary, setting out the main high-level issues that Members should consider in advance of Budget 2019.

This Quarterly Commentary

• summarises the Central Statistics Office’s latest economic data, as well as the forecasts and analysis of the major international and domestic economic forecasting organisations. 

The main macroeconomic indicators point to an economy growing strongly in 2018 and 2019. However, the macroeconomic risks such as a ‘hard’ or no deal Brexit, or international trade disputes, have the potential to slow economic growth. Should some of the uncertainty around these issues be resolved this could mean economic growth higher than currently forecast.

• uses the Government’s latest fiscal data to detail and analyse how the revenue and expenditure sides of the Budget are performing relative to projections. 

Tax revenue, while growing strongly, is slightly under profile for the first three quarters of the year. Under-performance in excise duties and stamp duties is responsible for this and the fact that those outturns are well below target suggests that improvements could be made to the models used by the Department of Finance to forecast these taxes. Corporation Tax revenue, as in previous years, is running ahead of profile and the achievement of fiscal targets is becoming more dependent on this source of revenue.

Overall expenditure is below profile with capital expenditure along with the State’s EU Budget contribution and interest on the National Debt well below profile. However, current expenditure is above profile with overruns in Health, Education and Skills and the Justice Group of Votes of particular concern and likely to require Supplementary Estimates.

In this issue the PBO has produced boxes on selected issues including (1) inequality metrics, (2) Brexit – Ireland’s trade with the UK and (3) the National Training Fund (NTF).

Director of the Parliamentary Budget Office Annette Connolly said:

“Continued strong macroeconomic and fiscal indicators are welcome, particularly in the context of external downside risks to the economy such as Brexit and international trade tension. We should also remain aware however of the domestic risks posed by a potentially overheating economy.

“The overruns in expenditure against profile in the Health, Education and Skills and the Justice Group of Votes indicate that Supplementary Estimates will almost certainly be sought from Dáil Éireann within the next two months. This has become an almost annual occurrence for these Votes and raises issues around expenditure management and the reliance on post-Budget increases in expenditure over and above those approved by Dáil Éireann. In that context, I note that Corporation Tax returns continue to over perform profile. However, it would not be prudent to rely on these revenues to fund additional long-term spending commitments such as further substantial increases in public sector employment.”

The publication can be found here.