Release of PBO’s Quarterly Economic and Fiscal Commentary Q4 2018

The PBO’s Quarterly Commentary updates Members on economic and fiscal developments and brings associated issues to their attention. This is the first Commentary since the Parliamentary Budget Office was established on a statutory basis in late 2018.
In summary, the Irish economy maintained its momentum in 2018. High economic growth has translated to high employment growth. However, the benign global economic environment that has facilitated Ireland’s economic recovery from the financial crisis, is now growing more turbulent.

The main international economic forecasting bodies suggest that global economic growth has peaked, and are predicting a modest slowdown in economic growth in 2019 and 2020.
Ireland’s main trading partners all face major economic risks in 2019 including, amongst others, Brexit for the UK and EU, potential trade disruption between the US and China and rising interest rates in the US.

In terms of fiscal developments, the surge in Corporation Tax revenue should lead to a small nominal General Government Surplus in 2018. However, it is unclear what this means for the Structural Budget Balance (which is the basis for compliance with the EU fiscal rules) as at least €700 million of Corporation Tax revenue is due to a one-off adjustment in international accounting standards.

The unexpected Corporation Tax receipts in 2018 have masked a number of other (fiscally) important issues. These include: excise duties and stamp duty receipts collectively €600 million below profile; the large over-profile increase in Voted expenditure of € 1.3 billion; and almost €500 million in higher than expected receipts from ‘other’ revenue that there is little or no information on.

Annette Connolly, Director of the PBO said “Maintaining and improving public services should be done in a sustainable way supported by stable revenue streams. There are a lot of questions regarding the increases in Corporation Tax receipts and whether they will continue to be a reliable and stable source of revenue. Policymakers need more certainty on the extent to which revenue from Corporation Tax can be relied on to maintain public services.”  Ms Connolly also stated “There should also be a focus on delivering public services in an efficient and productive manner that focuses on the best outcomes for public service users.” 

The PBO believes that without the unexpected increase in Corporation Tax revenue and some other receipts, achieving a budget surplus would have been in doubt.
A no-deal or disorderly Brexit is likely to have a negative effect on the economy and tax revenue. The Central Bank of Ireland recently estimated that economic growth in 2019 could be three percentage points lower than expected in a disorderly scenario. In that case the PBO estimates that tax revenue would be approximately €1.4 billion lower than expected. This is almost equivalent to the budget for the Department of Children and Youth Affairs in 2019.
In this latest Commentary, the PBO has also produced short information boxes on selected issues including: the construction sector; the European Semester - macroeconomic imbalances; economic overheating; tax revenue buoyancy; supplementary pension auto-enrolment; and fiscal space and fiscal stance.

The Quarterly Economic and Fiscal Commentary Q4 2018 is available here

Following the passing of Houses of the Oireachtas Commission Act 2018, the Parliamentary Budget Office is now established on a statutory basis. The PBO has published a Note and Infographic on ‘The Role and Functions of the Parliamentary Budget Office’. The note outlines the role of the Office within the Houses of the Oireachtas Service as the authoritative unit on fiscal and budgetary matters and its functions in conducting independent, impartial analysis and research for Oireachtas Members and Committees.