An Oifig Buiséid Pharlaiminteach Parliamentary Budget Office Quarterly Economic and Fiscal Commentary - Q1 2019 - PBO Publication 20 of 2019
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An Oifig Buiséid Pharlaiminteach
Parliamentary Budget Office
Quarterly Economic and Fiscal
Commentary – Q1 2019
PBO Publication 20 of 2019
Séanadh Is í an Oifig Buiséid Pharlaiminteach (OBP) a d'ullmhaigh an doiciméad seo de réir na feidhmeanna atá leagtha síos san Acht um Choimisiún Thithe an Oireachtais, 2003 (mar a leasaíodh),mar áis do Chomhaltaí Thithe an Oireachtais ina gcuid dualgas parlaiminteach. Féadfaidh an OBP aon fhaisnéis atá ann a bhaint as nó a leasú aon tráth gan fógra roimh ré. Níl an OBP freagrach as aon tagairtí d'aon fhaisnéis atá á cothabháil ag tríú páirtithe nó naisc chuig aon fhaisnéis den sórt sin ná as ábhar aon fhaisnéise den sórt sin. Tá baill foirne an OBP ar fáil chun ábhar na bpáipéar seo a phlé le Comhaltaí agus lena gcuid foirne ach ní féidir leo dul i mbun plé leis an mórphobal nó le heagraíochtaí seachtracha. Disclaimer This document has been prepared by the Parliamentary Budget Office (PBO) in accordance with its functions under the Houses of the Oireachtas Commission Act 2003 (as amended) for use by the Members of the Houses of the Oireachtas to aid them in their parliamentary duties. It is not intended to be either comprehensive or definitive. The PBO may remove, vary or amend any information contained therein at any time without prior notice. The PBO accepts no responsibility for any references or links to or the content of any information maintained by third parties. Staff of the PBO are available to discuss the contents of these papers with Members and their staff, but cannot enter into discussions with members of the general public or external organisations.
Quarterly Economic and Fiscal Commentary
Contents
1
Overview 2
Latest Macroeconomic Developments 4
Economic Growth in 2018 4
Latest Quarterly Economic Growth Statistics 5
Economic Growth Forecasts for 2019-2020 7
Other Economic Indicators 8
Growth Prospects in Major Trading Partners 13
PBO Macro-Fiscal Risk Network 16
Macroeconomic and Fiscal Risks 17
Fiscal Developments 23
Taxation and other revenue 23
Taxation 23
Quarterly Economic and Fiscal Commentary
Appropriations-in-Aid 25
Non-tax revenue and Capital Resources 25
Non-General Government Balance impacting revenue 26
Overall Exchequer expenditure 26
Gross Voted current expenditure 26
Gross Voted capital expenditure 28
Overall Balance 32
Government Debt 33
Box 1: Tax Revenue Volatility and Forecast Errors 20
Box 2: Reconciling SIF Expenditure within the Multiannual Expenditure Ceilings 31
Box 3: Green Bonds 34
Box 4: Finding the Volatility Minimising Tax Portfolio 35
Quarterly Economic and Fiscal Commentary
Overview
2
Macroeconomic Developments and Risks
The Irish economy continues to experience strong economic growth. 2018 marks the ninth consecutive year of
economic growth. According to preliminary estimates by the CSO, Gross Domestic Product (GDP) grew by 6.7%
last year. This makes Ireland the fastest growing economy in the EU-28 for 2018 and in four of the last five years.
This growth was broad-based, as it was driven by both an increase in net exports and growth in the domestic economy.
An analysis of alternative indicators, which attempt to control for the effects of globalisation on Ireland’s National
Accounts, suggests that the Irish economy experienced strong underlying growth in 2018 with Modified Total Domestic
Demand increasing by 3.3% in real terms.
This momentum is confirmed by other economic indicators. In Q4 2018, unemployment reached its lowest quarterly rate
since Q3 2008. However, reductions in the numbers unemployed have started slowing and skills shortages have become
apparent in certain sectors (most notably in ICT and Professional, Scientific and Technical Activities). Inward migration
has played a role in helping to alleviate some of these skills shortages. For example, in Q4 2018, non-Irish nationals
Quarterly Economic and Fiscal Commentary
made up 29.1% of employment in Information and Communication. In a low inflation environment, average weekly
earnings are growing fast (+3.4% in 2018), implying real gains in disposable incomes.
In the short-term, “consensus” forecasts highlight that Ireland is expected to experience robust growth in economic
activity, with projected real GDP growth averaging 4.1% in 2019 and 3.5% in 2020. However, uncertainty and external
risks have heightened. A slowdown in global growth is now expected, exacerbated by weaker growth developments in
both advanced and developing economies. The probability of a US recession has increased in recent months and growth
in the Euro Area has slowed. Of particular importance for Ireland, a no-deal Brexit is increasingly likely. This would have
severe negative economic and fiscal impacts. Economic and fiscal forecasts in the upcoming Stability Programme
Update, as well as policy decisions in Budget 2020, will need to take account of this.
Other important risks include the changing international tax environment; pro-cyclical domestic fiscal policies;
the concentration of Ireland’s production base and overreliance on multinationals; housing supply constraints;
normalisation of monetary policy and unmet climate emission and energy targets. These risks and the linkages
among them are explored in a greater detail in the PBO’s new Macro-Fiscal Risk Network.
Fiscal Developments
Revenue
Up to end-March 2019, overall revenue was €16,017 million, which was €130 million (0.8%) above expectations. Overall,
revenue was broadly in line with profile, and year-on-year revenue is up €1,003 million (6.7%). The different sources of
revenue underlying these headline figures vary widely in performance against profile. Given the early point in the year,
it is not possible to come to any definitive conclusions about the overall tax revenue in 2019.
Quarterly Economic and Fiscal Commentary
Expenditure
Up to end-March, overall Central Government expenditure (excluding transactions with no General Government Balance
impact) equalled €18,178 million, €331 million below profile but €1,132 million (6.6%) more than at end Q1 2018. This
was made up of €15,039 million in Voted expenditure, €1,195 million in non-Voted expenditure, and €1,944 million in
interest on the National Debt.
3
Gross Non-Voted Current Expenditure is above profile by €37 million and is also €336 million above the corresponding
level at the same point in 2018. Gross Voted current expenditure is €245 million (1.7%) under profile. This is relatively
consistent with the position in 2018 when it was €212 million (1.6%) below profile.
Gross Voted capital expenditure is €98 million (10.1%) under profile. This is closer to profile than at the same point
in 2018 when expenditure was €117 million (13.2%) under profile. In 2018, gross Voted capital expenditure (the net
position of all Vote Groups) was under profile until December; Q1 2019 appears to suggest that last year’s pattern
is recurring.
Expenditure at, or near, profile may be indicative of accuracy in profiling of expenditure; however, for Vote Groups with
regular recourse to Supplementary Estimates, performance, at or close to profile as early as Q1 suggests that careful
monitoring may be required as the year continues. The near profile current expenditure of the Health Vote Group may
be a cause for concern. In isolation, the simple performance of each Vote Group against profile at the end of Q1 2019
is not especially informative and gives little indication about the overall expenditure performance of the Vote Groups.
Quarterly Economic and Fiscal Commentary
Overall Balance and Government Debt
The Exchequer Balance showed a deficit of €966 million at end Q1 2019, which is €411 million better than the expected
deficit of €1,377 million. This was principally due to above profile tax revenue (in particular Corporation Tax) and below
profile current and capital Voted expenditure. This under profile expenditure cannot be assumed to continue throughout
the year.
Gross National Debt at the end of 2018 was €205.3 billion with National Debt at €187.7 billion. Ireland’s General
Government Debt was projected to be €205.9 billion or 64% of GDP at end 2018. Ireland’s Debt-to-GDP ratio is projected
to fall below 60% in 2020 – meaning that Ireland’s debt to GDP ratio would fall below the threshold of the Debt rule in
the preventative arm of the Stability and Growth Pact. However, the stock of debt is still high both in historic terms,
and in an international context when assessed against alternative metrics to GDP.
Information boxes
In this edition of the Quarterly, there are four information boxes examining a range of topical issues. These include:
n Box 1 – Tax Revenue Volatility and Forecast Errors;
n Box 2 – Reconciling SIF Expenditure within the Multiannual Expenditure Ceilings;
n Box 3 – An Overview of Green Bonds; and,
n Box 4 – Finding the Volatility Minimising Tax Portfolio (an extract from the PBO’s first working paper).
Quarterly Economic and Fiscal Commentary
Latest Macroeconomic Developments
4
This section outlines the latest macroeconomic developments, and provides commentary on some of the main risks
facing the Irish economy in the short to medium term.
Economic Growth in 2018
Strong and broad-based GDP growth for 2018…
Preliminary estimates of key macroeconomic indicators for 2018 published by the Central Statistics Office (CSO)
indicate that the Irish economy performed strongly last year. The Irish economy, as measured by Gross Domestic
Product (GDP), grew by 6.7% in volume terms (to €312.5 billion), while real Gross National Product (GNP), which
takes account of income inflows to, and outflows from, Ireland, grew by 5.9% (to €245.7 billion). This makes Ireland
the fastest growing economy in the EU-28.
This growth was broad-based, as it was driven by both an increase in net exports (+13.8%) and growth in the domestic
economy as measured by the annual change (+4.7%) in Total Domestic Demand (the sum of personal consumption
(+3%), government consumption (+6.4%), investment (+9.8%) and inventories).
Quarterly Economic and Fiscal Commentary
The annual increase in capital formation was driven by a:
n 15.9% increase in Building and Construction (+25.9% for new dwellings, highlighting the housing
supply response);
n 37.7% growth in Machinery and Equipment, which was strongly affected by aircraft leasing. Removing
the influence of aircraft leasing, Machinery and Equipment grew by 5.3% in 2018; and
n 10.9% reduction in investment in Intangibles.
On a sectoral basis, Information and Communication (+30.7% – largely impacted by an increase in exports and royalty
payments from abroad), and Construction (+15.4%) are the sectors that experienced the largest annual increase,
while Gross Value Added (GVA) in Agriculture, Forestry and Fishing decreased by 12.9%. The value of Information and
Communication for the Irish economy has grown in significance in recent years, accounting for 12.3% of total GVA and
an employment share of 5.2% in 2018. This highlights the concentration of Ireland’s production base in a small number
of highly-productive sectors and companies (more detail in the risks section).
Alternative indicators suggest robust underlying economic growth…
It is well-acknowledged that conventional measurements of the Irish economy are distorted by the globalised activities
of multinationals. An analysis of alternative indicators produced by the CSO such as Modified Total Domestic Demand
and Modified Gross Domestic Fixed Capital Formation,1 which attempt to control for the effects of globalisation,
suggests that the Irish economy experienced strong underlying growth in 2018 (Figure 1), with Modified Total Domestic
Demand increasing by 3.3% in real terms and Modified Gross Domestic Fixed Capital Formation increasing by 6.9%.
1 Modified Total Domestic Demand and Modified Gross Domestic Fixed Capital Formation are indicators produced by the CSO that strip out some of
the activities of multinationals (e.g. R&D and aircraft leasing) to get a better picture of the underlying spending and output in the domestic economy.
Quarterly Economic and Fiscal Commentary
Figure 1: Growth trends in the domestic economy (constant prices, annual % change)
20%
15%
10%
5% 5
0%
-5%
-10%
-15%
-20%
-25%
2010 2011 2012 2013 2014 2015 2016 2017 2018
Modified Total Domestic Demand Modified Gross Domestic Fixed Capital Formation
Source: CSO (2019) Quarterly National Accounts Quarterly Annex 4A and Annex 4D.
Latest Quarterly Economic Growth Statistics
Quarterly Economic and Fiscal Commentary
Sustained but moderate economic growth in the final quarter of last year…
Figure 2: Components of GDP – constant prices by quarter (€ millions)
80000
70000
60000
50000
40000
30000
20000
10000
0
-10000
2017 Q1 2017 Q2 2017 Q3 2017 Q4 2018 Q1 2018 Q2 2018 Q3 2018 Q4
Consumption Investment Inventories Government Net Exports
Source: CSO (2019) Quarterly National Accounts Quarter 4 2018 Table 7.
Quarterly Economic and Fiscal Commentary
While quarterly data in Ireland are inherently more difficult to interpret due to their volatility, the CSO’s latest quarterly
economic growth statistics (published in mid-March) point to continued but moderate economic growth in the final
quarter of last year. On a seasonally adjusted basis, real GDP grew by 0.1% in Q4 2018 relative to Q3 2018, but was
2.6% higher compared with Q4 2017.
6 Conversely, driven by an increase in factor income outflows (i.e. profits of foreign-owned companies repatriated abroad),
real GNP (seasonally adjusted) decreased by 2.4% from Q3 to Q4 2018 and 0.5% from Q4 2017 to Q4 2018. While the
contribution of components to real GDP is relatively stable in Q4 2018 compared to Q3 2018 (Figure 2), there was a
€1,998 million increase in investment (explained by an increase in intangibles driven by intellectual property (IP)
imports), and a decrease in net exports between Q3 2018 and Q4 2018 (see Figure 3). Figure 3 highlights how the
globalised activities of multinationals impact, in opposite directions, on investment and net exports (i.e. IP imports
increase investment and decrease net exports).
In terms of growth trends in the domestic economy, Modified Total Domestic Demand increased by 0.5% in real terms
in the last quarter of 2018 (-1.6% from Q4 2017 to Q4 2018).
Figure 3: Components of GDP – change on previous quarter (€ millions)
15000
10000
Quarterly Economic and Fiscal Commentary
5000
0
-5000
-10000
-15000
-20000
2017 Q1 2017 Q2 2017 Q3 2017 Q4 2018 Q1 2018 Q2 2018 Q3 2018 Q4
Consumption Government Investment
Inventories Net Exports GDP
Source: CSO (2019) Quarterly National Accounts Quarter 4 2018 Table 7.Quarterly Economic and Fiscal Commentary
Economic Growth Forecasts for 2019-2020
The Irish economy is expected to continue growing in the short-term but Brexit
is looming…
Figure 4 shows the range of short-term forecasts for real GDP growth in Ireland (based on analysis by the European
Commission, the Department of Finance, the Central Bank of Ireland and the ESRI), including preliminary CSO estimates
7
for growth in 2018. The solid (central) line in the figure represents the central forecast calculated as an average of the
forecasts provided by the different forecasting bodies (the “consensus” forecast), while the dashed lines (representing
the lowest and highest projected values) capture the degree of uncertainty surrounding this central growth estimate.
Figure 4: Economic growth forecasts for 2019-2020 (annual % change in real GDP)
7.0%
6.5%
6.0%
5.5%
5.0%
4.5%
4.0%
Quarterly Economic and Fiscal Commentary
3.5%
3.0%
2.5%
2018e 2019f 2020f
Source: PBO elaboration on forecasts by European Commission Country Report, Department of Finance Economic
and Fiscal Outlook, Central Bank of Ireland Quarterly Bulletin and ESRI Quarterly Economic Commentary.
Ireland is expected to experience robust economic growth in the short-term with projected real GDP growth averaging
4.1% in 2019 and 3.5% in 2020. There is wide consensus among the main forecasting bodies, with little variation
between forecasts. It must be noted that all these macroeconomic forecasts are based on a purely technical assumption
that the status quo will remain in terms of trading relations between the EU-27 and the UK. While the size and scale of
the impact of Brexit is highly uncertain, given that it is an unprecedented event, a ‘disorderly’ Brexit has the potential to
have a harder-than expected adverse impact on Irish trade, supply-chain links, firms’ competitiveness and employment
in the economic sectors with the strongest ties to the UK.
New research produced by the ESRI2 indicates that the Irish economy will continue to grow in all Brexit scenarios, but
the growth rate will be lower in the event of a no-deal scenario or a disorderly no-deal scenario. The ESRI forecasts that
growth would be reduced in a disorderly no-deal scenario by 2.6% in 2019 and 0.8% in 2020. The ESRI also forecasts
a reduced level of real output in the Irish economy after 10 years, by 2.6% in a deal scenario, by 4.8% in a no-deal
scenario, and by 5% in a disorderly no-deal scenario. A potential foreign direct investment diversion to Ireland will
only partially offset some of the overall negative impact (mostly through trade) of Brexit.
2 A. Bergin, Economides, Garcia-Rodriguez, A., and Murphy, G. 2019. “Ireland and Brexit: modelling the impact of deal and no-deal scenarios”,
Economic and Social Research Institute. ESRI Special Article.Quarterly Economic and Fiscal Commentary
In mid-late April, the Department of Finance will publish updated economic forecasts as part of the Stability Programme
Update (SPU) 2019.
Other Economic Indicators
8
An understanding of the prevailing trends in the Irish economy requires an analysis of other indicators which can help
better assess the current state of the economy. Some of these indicators are also available on a more frequent basis
and therefore can be used for a timelier analysis of recent economic developments than possible with GDP, GNP, or
Modified Gross National Income (GNI*).
Figure 5: Number in Employment (thousands) and Unemployment Rate (%)
2280 8%
7%
2260
6%
2240
5%
2220 4%
3%
2200
2%
Quarterly Economic and Fiscal Commentary
2180
1%
2160 0%
2017 Q1 2017 Q2 2017 Q3 2017 Q4 2018 Q1 2018 Q2 2018 Q3 2018 Q4
Employment (LHS) Unemployment rate (RHS)
Source: CSO (2019) Labour Force Survey Quarter 4 2018 Table 3. Seasonally Adjusted.
Employment growing at 2.3% year-on-year, however unemployment is plateauing
and skills shortages persist in certain sectors…
The latest figures show the numbers in employment growing by 2.3% year-on-year. On a seasonally adjusted basis,
approximately 49,900 net jobs were added in the year to Q4.
In Q4 2018, employment increased by 8,300 (+0.4%), the lowest quarterly increase since Q1 2017. Administrative
and Support Service Activities (+12.9%) and Construction (+7.9%) experienced the largest increase in employment
year-on-year, while employment numbers decreased the most in Agriculture, Forestry and Fishing (-6.6%). Employment
in Transportation, Education and Public Administration sectors increased significantly (around 6.6%), while employment
in Industry was broadly unchanged year-on-year.Quarterly Economic and Fiscal Commentary
Based on the quarterly figures, the numbers unemployed has plateaued in the year to Q4, at approximately 135,900.
The unemployment rate was 5.7% in Q4 2018, the lowest quarterly rate since Q3 2008 (the latest monthly
unemployment rate (February 2019) is 5.6% with 135,100 persons unemployed).
While in 2018 the economy increased employment and reduced the total number of job vacancies overall, skills
shortages are present in sectors with higher job vacancy rates (the fraction of vacancies relative to the total number 9
of jobs) such as ICT (1.7% in Q4 2018), Professional, Scientific and Technical Activities (2.7%) and Financial, Insurance
and Real Estate Activities (2.2%). Inward migration has played a role in helping to meet some of the employers’ needs
for skills. For example, in Q4 2018, non-Irish nationals made up 29.1% of employment in ICT (the largest employment
share was in Accommodation (34.6%), while the lowest were in Education (8.9%) and Professionals (9.1%)).
Figure 6: Average Weekly Earnings (€) Average weekly earnings are
growing fast (3.4% in 2018) in
780
a low inflation environment…
Seasonally adjusted average weekly
760 earnings in Q4 2018 were €762.22,
an increase of 1.2% from the previous
quarter and up 4.6% compared to
740
Q4 2017.
Quarterly Economic and Fiscal Commentary
All sectors showed earnings growth
720 with strong year-on-year earnings
growth in the Administrative and
700
Support Service (+10.5% to
€600.83), Transportation and
2017 Q1
2017 Q2
2017 Q3
2017 Q4
2018 Q1
2018 Q2
2018 Q3
2018 Q4
Storage (+9.1% to €840.68),
Construction (+8.2% to €792.95) and
Source: CSO Earnings and Labour Costs Q3 2018 (Final) & Q4 2018 Information and Communications
(Preliminary). Seasonally adjusted. (+5.2% to €1,196.39) sectors.Quarterly Economic and Fiscal Commentary
Figure 7: Monthly inflation (All-items HICP, Annual % change) Inflation in Ireland is still
subdued and one of the lowest
2.5%
in the EU…
2.0% According to the EU Harmonised
Index of Consumer Prices (HICP),
10 1.5%
inflation in Ireland in February 2019
was 0.7% (compared with February
1.0%
2018), while inflation in the EU was
0.5% 1.6%. Ireland has one of the lowest
inflation rates in the EU, despite
0.0% wages growing faster.
-0.5%
The components of the Irish HICP
recording the highest level of inflation
Feb 18
Mar 18
Apr 18
May 18
Jun 18
Jul 18
Aug 18
Sep 18
Oct 18
Nov 18
Dec 18
Jan 19
Feb 19
were Housing, Water, Electricity, Gas
and Other Fuels at 4.6%, and Hotels
EU – 28 countries Ireland and Restaurants at 3.6%.
Conversely, prices decreased
Source: Eurostat Harmonised Indices of Consumer Prices. % change
the most for Furnishing (-3.7%),
compared to same month in previous year.
Communications (-1.9%),
Quarterly Economic and Fiscal Commentary
Miscellaneous Goods & Services
(-1.7%) and Clothing & Footwear
(-1.7%).
Figure 8: Retail Sales Retail sales continue to show
robust growth…
110
The volume of retail sales excluding
108 motor trades (seasonally adjusted)
increased by 1.4% in the month of
106 February. The index also showed
robust year-on-year growth, as it
104 was 5.3% higher in February 2019
than a year ago.
102 The goods that saw particularly
large annual increases in the volume
100 of retail sales were: Electrical Goods
Jan 17
Mar 17
May 17
Jul 17
Sep 17
Nov 17
Jan 18
Mar 18
May 18
Jul 18
Sep 18
Nov 18
Jan 19
(+17.6), Furniture & Lighting (17.4%),
Clothing, Footwear and Textiles (9.3%),
and Pharmaceuticals, Medical and
Source: CSO Retail Sales Index February 2019. Retail Sales by volume Cosmetic Articles (8.3%). Sales in
excluding motor trades, seasonally adjusted. Base January 2017 = 100.
Bars (pubs) declined (-5.1%).Quarterly Economic and Fiscal Commentary
Figure 9: Services On the back of a strong
performance of ICT, services
120
sales experienced very high
growth year-on-year…
116
The seasonally adjusted monthly
services value index increased by
11
112
2.9% in January 2019, and by 6.3%
year-on-year.
108
The services sectors showing the
strongest year-on-year growth were
104
Information and Communication
(+21.6%), Transportation and Storage
100
(+14.6%), and Accommodation and
Jan 17
Mar 17
May 17
Jul 17
Sep 17
Nov 17
Jan 18
Mar 18
May 18
Jul 18
Sep 18
Nov 18
Jan 19
Food Services (+6.4%). The largest
annual decreases occurred in
Source: CSO Monthly Services Index January 2019. Services sales by value, Administrative and Support
seasonally adjusted. Base January 2017 = 100. Service Activities (-14.2%), and
in Professional, Scientific and
Technical Activities (-9.9%).
Quarterly Economic and Fiscal Commentary
Figure 10: External Trade in Goods and Services (€ million) Both Exports and Imports
increased significantly on an
100000
annual basis, but figures are
90000 affected by the activities of
80000 multinationals…
70000
Exports of goods and services in Q4
60000
2018 were up 5.3% compared to Q3
50000
2018 and up 8.2% compared to Q4
40000
2017. Imports on the other hand
30000
grew 9.0% in the quarter, and were
20000
up 20.6% on Q4 2017 (with R&D
10000 imports playing a significant role).
0
As a result of this, while net exports
2017 Q1
2017 Q2
2017 Q3
2017 Q4
2018 Q1
2018 Q2
2018 Q3
2018 Q4
were still a significant contributor to
yearly economic growth, net exports
were lower in Q4 2018 compared to
Exports Imports Net Exports
Q3 2018 and to Q4 2017.
Source: CSO Quarterly National Accounts Quarter 4 2018 Annex 1B.
Seasonally Adjusted.Quarterly Economic and Fiscal Commentary
Figure 11: Current Account Balance (€ million) Ireland’s Current Account
Balance shows a small surplus,
40000
driven by a large merchandise
30000 surplus, compared to a modest
services deficit and net income
20000 outflows…
12
10000 The Current Account is a measure
of Ireland’s economic flows with the
0
rest of the world. Ireland’s Current
-10000 Account Balance has been in surplus
since Q3 2017. A small surplus of
-20000
0.2% of GDP was recorded in Q4
-30000 2018. The CSO estimates that the
2017 Q1
2017 Q2
2017 Q3
2017 Q4
2018 Q1
2018 Q2
2018 Q3
2018 Q4 Current Account Balance for 2018
was 9.1% of GDP (up from 8.5% of
GDP in 2017) highlighting the impact
Merchandise Services Primary Income
of aggregate income inflows into
Secondary Income Balance on Current Account
Ireland.
Source: CSO Balance of International Payment Q4 2018 Table 1. A breakdown of the current account
for 2018 shows the existence of a
Quarterly Economic and Fiscal Commentary
large merchandise surplus (€109,695
million), a services deficit (€10,242
million) and net income outflows
(€70,458 million).
It must be noted that there are
significant distortions caused to Irish
current account data by the activities
of multinational firms, which have
complicated the interpretation of this
indicator.Quarterly Economic and Fiscal Commentary
Figure 12: Residential Property Prices Property prices in Ireland
continue to increase, but are
125
still below peak levels. The
rate of house price inflation
120
reduced in Dublin relative to
the rest of Ireland…
115 13
Residential property prices have
110 increased significantly since their
lowest level in 2013, but in January
105
2019 were still 18% below peak levels
100 reached in April 2007, and do not
appear to be fuelled by excessive
95 credit growth. As is clear from Figure
Jan 17
Mar 17
May 17
Jul 17
Sep 17
Nov 17
Jan 18
Mar 18
May 18
Jul 18
Sep 18
Nov 18
Jan 19
12, since March 2018 property prices
in Dublin have started increasing at a
lower rate than in the rest of Ireland.
National – all residential properties
Furthermore, over the last 3 months,
National excluding Dublin – all residential properties
residential property prices in Dublin
Dublin – all residential properties
have decreased by -2.8%, but did
Source: CSO Residential Property Price Index January 2019. Base January increase by 1.9% in the 12 months
Quarterly Economic and Fiscal Commentary
2017 = 100. to January 2019.
Growth Prospects in Major Trading Partners
Given its globalised nature, openness to trade and propensity to attract foreign direct investment from abroad, Ireland
is highly exposed to changes in economic activity in major trading partners such the US, the Euro Area and the UK.
In this section, we briefly discuss growth prospects for Ireland’s main trading partners. Figure 13 shows short-term
expected economic developments in the US, the Euro Area and the UK. Growth projections are taken from the European
Commission, the OECD, the IMF and the World Bank. A central forecast (solid line) is calculated by averaging the
forecasts provided by the different forecasting bodies, while the dashed lines (the lowest and highest projected values)
capture the degree of uncertainty surrounding these central estimates.Quarterly Economic and Fiscal Commentary
Figure 13: Short-term expected economic developments in the US, Euro Area and UK
3.5% 3.5% 3.5%
3.0% 3.0% 3.0%
2.5% 2.5% 2.5%
14
2.0% 2.0% 2.0%
1.5% 1.5% 1.5%
1.0% 1.0% 1.0%
0.5% 0.5% 0.5%
0.0% 0.0% 0.0%
2018e 2019f 2020f 2018e 2019f 2020f 2018e 2019f 2020f
United States Euro area United Kingdom
Source: PBO elaboration on forecasts by World Bank Global Outlook, European Commission Winter Economic Forecast,
OECD Interim Economic Outlook and IMF World Economic Outlook.
Quarterly Economic and Fiscal Commentary
The US economy marks the ninth consecutive year of economic growth but the
probability of recession has increased…
The US economy is continuing to experience robust growth. 2018 marks the ninth consecutive year of US growth, the
third longest period of economic expansion (after those between 1959-1973 and 1992-2007). While the unemployment
rate reached its lowest point in 48 years (3.7%) (however, the prime age participation rate is low compared to historic
levels), the economy is continuing to create new jobs on a monthly basis. While the Federal Reserve System (FED)
has begun tightening monetary policy and is planning to return both short-term interest rates and securities holdings
to more normal levels, economic activity will be boosted in the short-term by the US Government’s fiscal stimulus.
However, the main forecasting bodies expect a slow down in the US economy and several commentators have raised
concerns about the possibility of an upcoming recession. The US Treasury yield curve at present shows short-term
(3 month) yields higher than long-term (10-year) yields. This is known as “inversion” of the yield curve and it could
suggest that the market is anticipating a recession in the near future. This happened previously in 2000-2001 (the
“Dot-com bubble”) and in 2007-2008 (the global crisis), and has shown historically to be a good predictor/sign of
recession in the US. Research from the World Bank in its latest Global Outlook indicates that while the probability
of a US recession in the short term is still low, it has increased in recent months. Given the strong economic linkages
between the US and the Irish economy, any negative shock to the US economy has the potential to negatively impact
on Ireland.3
3 Research from the National Treasury Management Agency (NTMA) (“Impacts of the US economy on Ireland: A Quantitative and Qualitative Analysis”)
highlights that the Irish economy is closely interconnected to the US economy. When the US economy expands, the Irish economy grows at a faster
rate. Likewise, when the US economy falls into a recession, the Irish economy contracts.Quarterly Economic and Fiscal Commentary
The Euro Area is projected to continue growing but at a slower pace.
Large uncertainty surrounds growth forecasts for the UK, but the outlook
is generally pessimistic…
While the Euro Area is projected to continue growing (with an average forecast of 2.9% in 2018), the pace of expansion
reduced in the Euro Area in the second half of the previous year. The main forecasting bodies revised their growth 15
forecasts downwards for 2019 and 2020. Lower growth prospects for the Euro Area are explained by the slowdown in
Germany and Italy, weaker external demand, policy-induced uncertainties related to Brexit and trade tensions with the
US. However, unemployment continues to fall with the EU-28 unemployment rate at 6.5% in January 2019 (the lowest
level since January 2000). While at the start of 2019 the European Central Bank (ECB) ended the quantitative easing
programme and stopped purchasing additional European government bonds, it is expected to maintain negative interest
rates at least until 2020. Large uncertainty surrounds growth forecasts for the UK economy. Real GDP growth in the UK is
expected to slow down from 2.5% in 2018 to 1.7% in 2020. However, these projections will be strongly impacted by the
outcome of the Brexit process.
Quarterly Economic and Fiscal CommentaryQuarterly Economic and Fiscal Commentary
PBO Macro-Fiscal Risk Network
The PBO’s Macro-Fiscal Risk Network aims to show the PBO’s assessment in respect of the core macroeconomic and fiscal risks
facing the economy (in the short to medium-term) and their probability of occurring. It further explores the linkages between
these risks and their implications for the domestic economy. In this edition of the Quarterly, the PBO identifies nine core risks
(separated by colour) and 18 resulting impacts (grey shaded circles) that these core risks could have on the Irish economy.
Probability of Occurrence high medium low
Negative Developments Concentrated Disorderly Brexit
in the Global Economy Production Base & Geopolitical Risks
16
Trade
disruptions
Falling consumer Concentration
& business of Corporation
sentiment SME Tax receipts
investment gap
Currency
fluctuations
Oil price Unreliable
fluctuations fiscal forecasts
Over-reliance Regional
on MNCs disparities
Reductions
in external
Quarterly Economic and Fiscal Commentary
demand
Labour Domestic Changing
Supply & Skill Policy Issues International
Shortages Tax Environment
Loss in Budgetary
international over-spending
Overheating
competitiveness
Tax revenue
Unmet energy & Future revenue volatility
emission targets shortfalls
Extreme Financial
weather events instability
Housing Supply Inappropriate Climate Risks
Pressures Monetary PolicyQuarterly Economic and Fiscal Commentary
Macroeconomic and Fiscal Risks
The analysis that follows assesses each of nine identified core risks, and their likely impact on the economy, in detail.
This analysis aims to supplement the PBO Macro-Fiscal Risk Network on the preceding page.
Negative Developments in the Global Economy 17
Probability: Moderate
Impact: reductions in external demand; currency fluctuations; falling consumer and business
sentiment; trade disruptions; oil price fluctuations
Implications for: Current Account Balance; Domestic Demand
The OECD expects a slowdown in global growth from 3.6% in 2018 to 3.3% in 2019 and 3.4% in 2020 (a downward
revision from previous forecasts of 3.5% for each of 2019 and 2020, with similar revisions made by the IMF and the
World Bank). These revisions are driven by weaker growth prospects for the euro-area, and slowing growth in China.
Negative developments affecting Ireland’s main trading partners undermine domestic growth prospects by worsening
net exports and adversely impacting the current account balance. In addition, expectations of weaker than expected
global growth can dampen consumer and business sentiment, and risks undermining domestic demand.
Concentrated Production Base
Quarterly Economic and Fiscal Commentary
Probability: Low
Impact: SME investment gap; over-reliance on MNCs; tax revenue volatility; regional disparities;
concentration of Corporation Tax receipts
Implications for: General Government Balance; Domestic Demand; Current Account Balance
A large degree of economic activity in Ireland takes place in high-technology sectors dominated by multi-national
corporations (MNCs). These companies contribute a large share of both Corporation Tax and Income Tax receipts. This
exposes domestic output, employment, and revenues to firm- and sector-specific shocks, and to international factors
that are largely beyond domestic control. Furthermore, knowledge and productivity spill-overs are limited between
MNCs and domestic firms (see Di Ubaldo, Lawless and Siedschlag; 20184) and an SME (small and medium sized
enterprise) investment gap persists. This concentration of the production base also gives rise to regional disparities,
with MNCs agglomerating in certain key regions (specifically Dublin and other urban centres).
4 M. Di Ubaldo, Lawless, M. and Siedschlag, I. 2018. “Productivity spillovers from multinational activity to indigenous firms in Ireland”,
Economic and Social Research Institute, Working Paper 587.Quarterly Economic and Fiscal Commentary
Disorderly Brexit & Geopolitical Risks
Probability: High
Impact: reductions in external demand; currency fluctuations; falling consumer and business
sentiment; trade disruptions; SME investment gap; unreliable fiscal forecasts; oil price
18 fluctuations
Implications for: Current Account Balance; Domestic Demand; General Government Balance
Analysis by the ESRI suggests that Irish growth will be on a permanently lower path post-Brexit, relative to a no-Brexit
scenario. The scale of impact depends on the nature of the UK’s future relationship with the EU. Estimates of the impact
of a no-deal scenario on Irish growth vary from -2.3% to -7%, relative to baseline (see Bergin et al., 20195). This impact
would be propagated via severe trade disruptions and weaker consumer and business sentiment, adversely affecting
the current account balance and domestic demand, respectively. In addition, the assumption of an orderly Brexit set
the context for Budget 2019. For this reason, in fiscal terms, a disorderly Brexit could lead to lower than expected tax
revenues for 2019 and stronger than anticipated expenditure pressures, worsening the general government balance.
Additional geo-political risks include the on-going trade dispute between the US and China, and persistent trade
tensions between the US and the EU. While geo-political tensions also risk inflating oil prices (e.g. political crisis
in Venezuela, and US sanctions against Iran and Venezuela), these pressures may be offset by expectations of slowing
global growth.
Quarterly Economic and Fiscal Commentary
Labour Supply & Skills Shortages
Probability: Moderate
Impact: loss in international competitiveness; overheating
Implications for: Domestic Demand
As the economy approaches full employment, tightening labour supply could create upward pressure on wages,
undermining competitiveness, flattering domestic demand and strengthening the risk of overheating. A tightening labour
market risks exacerbating skill shortages (particularly in ICT and construction). Labour market participation remains
an issue; the participation rate (at approximately 62%) is consistently 4.5 percentage points below the 2007 peak.6
5 A. Bergin, Economides, Garcia-Rodriguez, A., and Murphy, G. 2019. “Ireland and Brexit: modelling the impact of deal and no-deal scenarios”,
Economic and Social Research Institute. ESRI Special Article.
6 Country Report Ireland 2019, European Commission.Quarterly Economic and Fiscal Commentary
Domestic Policy Issues
Probability: High
Impact: Overheating; tax revenue volatility; concentration of Corporation Tax receipts; spending
pressures; SME investment gap; regional disparities; over-reliance on MNCs; budgetary over-
spending 19
Implications for: General Government Balance; Domestic Demand
The pursuit of inappropriate pro-cyclical fiscal policy risks contributing to overheating, particularly in the context of
a less favourable monetary policy regime. Consistent expenditure overruns contribute to a deterioration in the general
government balance, and the use of windfall tax receipts from more volatile revenue sources (e.g. Corporation Tax)
to fund permanent expenditure is of concern.
Changing International Tax Environment
Probability: Moderate
Impact: Tax revenue volatility; loss in international competitiveness; unreliable fiscal forecasts;
concentration of Corporation Tax receipts; over-reliance on MNCs
Implications for: General Government Balance; Domestic Demand
Efforts to harmonise Corporation Tax policy across the EU, changes to US Corporation Tax policy, and the OECD’s
Quarterly Economic and Fiscal Commentary
“BEPS 2”7 (Base Erosion and Profit Shifting) risk undermining Ireland’s competitiveness and adds uncertainty to an
already volatile and difficult to predict revenue stream. Corporation Tax is growing in its share of overall tax revenue,
accounting for 18.7% of Exchequer Tax Receipts in 2018 (or almost €10.4 billion). IFAC report that just one large firm
leaving Ireland would reduce revenues by over €330 million, due to the loss in Corporation Tax alone.8
Housing Supply Pressures
Probability: High
Impact: Overheating; falling consumer and business sentiment; loss in international
competitiveness
Implications for: General Government Balance; Domestic Demand
Housing supply constraints risk placing upward pressure on both prices and wages. A lack of available housing
undermines Ireland’s competitiveness and inhibits the mobility of labour, exacerbating skill shortages in the labour
market. In addition, expectations of future price growth are a risk to consumer sentiment. However, a supply response
risks inflating domestic demand and contributing to overheating.
7 BEPS 2 seeks to create international consensus on a framework for taxation, and could lead to a readjustment in the balance of tax rights
and the allocation of profits, between jurisdictions where assets are owned and where consumers are based.
8 Fiscal Assessment Report, Irish Fiscal Advisory Council, November 2018.Quarterly Economic and Fiscal Commentary
Inappropriate Monetary Policy
Probability: Moderate
Impact: Overheating; financial instability
Implications for: Domestic Demand
20 The ECB has indicated that monetary policy normalisation is unlikely to take place before 2020, in light of weaker
than expected euro-area growth. With Irish growth expected to outpace the rest of the euro-area, it is unlikely that
monetary policy will serve to ease domestic demand and minimise the risk of overheating. In addition, persistently
low interest rates risk undermining financial market stability, as investors flock to risky assets in search of yield.
Climate Risks
Probability: Moderate
Impact: Unmet emissions targets; future revenue shortfalls; extreme weather events
Implications for: General Government Balance
Ireland is unlikely to meet binding energy and emissions targets by 2020, and will be required to purchase
energy allowances (estimated to cost between €148 million and €455 million per year; see Deane, 20179).
In addition, revenue from environmental taxes derives largely from vehicles and is linked to CO2 emissions.
This revenue will decline in line with the adaption of green technologies, potentially leaving a gap in the Exchequer
Quarterly Economic and Fiscal Commentary
over time, worsening the General Government Balance.10
Box 1: Tax Revenue Volatility and Forecast Errors
Having a tax base that consists of highly volatile revenue sources complicates prudential fiscal planning; more
volatile revenues are harder to predict and this can result in substantial forecast errors, making it more difficult
to plan future spending. Generally, policy makers should avoid using unsustainable revenue sources to fund
either permanent increases in public expenditure or tax reductions.
This Box analyses the historical relationship between tax revenue volatility in Ireland, and the forecast errors
associated with the largest tax categories. A special focus is on the analysis of Corporation Tax (CT) receipts,
which is motivated by the growing fiscal significance of this category of taxation, and the exceptional volatility
it has experienced in recent years.
9 Deane, P. 2017. “Missing climate and energy targets will cost Ireland millions”, RTÉ opinion piece, November 2017.
10 PBO Pre-Budget 2019: Energy and Environmental Tax Issues and Options, Summary of Tax Strategy Group Paper, 18 September 2018.Quarterly Economic and Fiscal Commentary
The accuracy of fiscal forecasts can be assessed using the percentage forecast error, which captures the difference
between the amount of revenue that was forecast for a particular tax and the actual outturn that was observed
in respect of that tax, expressed as a percentage of the initial forecast. Specifically, the percentage forecast error
(% FEt,i) for a given revenue stream i (e.g. CT) in year t (e.g. 2015), can be calculated as:
21
(Oi,t – Fi,t¦t–1)
%FEi,t =
Fi,t¦t-1
where Oi,t is the outturn in year t (e.g. 2015) for tax category i (e.g. CT); and Fi,t¦t-1 is the forecast for year t
(e.g. 2015) and tax category i (e.g. CT) done in year t-1 (the year previous, e.g. 2014).
Table 1 analyses the relationship between tax revenue forecast errors for the seven largest tax categories and
the volatility of their revenue streams11 (measured as the standard deviation of the growth rates of the revenue
streams). These calculations are based on revenue forecasts from the various budget documents published
since 2000, and revenue outturn data as of end-2017. It is reasonable to expect that forecasting will be more
difficult for the most volatile revenue sources, and as a result, the percentage forecast error will be larger. This
intuition is validated by the results shown in Table 1. Income Tax (3.6%), Excise Duties (4.0.%) and VAT (4.5.%) are
the revenue sources that were historically forecast with greater accuracy over the period 2000-2017, and are also
among the lowest in terms of standard deviation or volatility. Capital Taxes (28.5%) and Stamp Duties (18.3%)
show the largest forecast errors over time and are among the most volatile in terms of standard deviation.
Quarterly Economic and Fiscal Commentary
Forecasts of CT revenue have been the least accurate (12.3%) of the largest tax categories, and is among the
most volatile (with a standard deviation of 16.2%). Figure 14 shows the performance of forecasts of CT revenue
from 2000-2017. Since 2012, receipts have tended to be above forecasts, showing the effect of positive revenue
“surprises” or so called “windfall” receipts. These forecast errors are largely due to the responsiveness of
CT receipts to wider economic conditions, and to changes in tax regimes both internationally and domestically.
CT receipts are also highly concentrated. Data from the Revenue Commissioners (2018)12 highlights the extent
to which receipts are exposed to firm and sector-specific shocks, with:
n the top 10 taxpayers accounting for 39% of receipts; and
n foreign-owned multinationals accounting for 80% of receipts, as of end-2017.
The difficulty in accurately forecasting CT revenue is particularly concerning of late, given that the share of
CT (16.2% in 2017) has recently surpassed the share of Excise Duty (11.7% in 2017), becoming the third most
important revenue stream for the State. Receipts have surged in recent years, increasing by 95% from 2012
to 2017, with a 49% increase in 2015 alone (possibly influenced by the decision taken by foreign-owned
multinationals to re-locate their assets and activities to Ireland). CT revenue accounted for 16.2% of total
tax revenue in 2017 (or €8.2 billion), well above the long term-average (from 1984-2016) of 10.8%.
11 Standard deviation is a measure used to capture the degree of variability within a series.
12 Revenue (2018). Corporation Tax 2017 Payments and 2016 Returns.Quarterly Economic and Fiscal Commentary
At present, forecasts of CT are based on projections of Gross Operating Surplus (GOS, a measure of firms’ profits).
As highlighted by Casey and Hannon (2016),13 the difficulty in accurately forecasting CT revenue relates largely to
the challenges in forecasting GOS itself. While they propose alternative approaches to forecasting (e.g. the use of
alternative macro-drivers, such as external demand and the real effective exchange rate), these alternatives offer
22 only modest improvements in the accuracy of forecasts. Further research in this area would be beneficial to
support greater accuracy in forecasting and to facilitate sound and prudent budgetary planning.
Table 1: Mean absolute forecast error (%), and standard deviation (%), 2000 to 2017
Tax category Mean abs FE, % Standard
deviation, %
Income Tax 3.6 7.9
Excise Duties 4.0 5.9
Value Added Tax 4.5 9.3
Corporation Tax 12.3 16.2
Customs 13.2 14.7
Stamp Duties 18.3 27.3
Capital Taxes 28.5 39.9
Quarterly Economic and Fiscal Commentary
Source: PBO calculations based on Budget publications over 2000-2017.
Figure 14: Forecast error associated with Corporation Tax, %, 2000-2017
60%
50%
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: PBO calculations based on Budget publications over 2000-2017.
13 Casey E., and A. Hannon. (2016). Challenges Forecasting Irish Corporation Tax, IFAC, Analytical Note No. 10.Quarterly Economic and Fiscal Commentary
Fiscal Developments
23
This section briefly outlines the main fiscal developments in Q1 2019, concentrating on the end of March Exchequer
Returns from the Fiscal Monitor: March 2019 (April 2019). Unless otherwise stated the Fiscal Monitor is the source
of the fiscal data used herein. Taxation profiles were sourced from the Department of Finance’s Exchequer Borrowing
Requirement Profiles: March 2019 (March 2019).
Taxation and other revenue
Figure 15 shows Central Government revenue by source (excluding transactions with no General Government Balance
impact such as inter-Government loan transactions). Up to end-March 2019, overall revenue was €16,017 million,
which was €130 million or 0.8% above expectations. Revenue performance was driven by:
n Tax revenues were €157 million (1.2%) above profile;
n Appropriations-in-Aid were €22 million (0.7%) below profile; and
n Non-tax revenue and Capital Resources were €5 million (2.9%) below profile.
Quarterly Economic and Fiscal Commentary
Overall, revenue was broadly in line with profile and year-on-year, revenue is up €1,003 million or 6.7%. However,
the different sources of revenue underlying these headline figures can vary widely in performance against profile.
These variations are explored in more depth below.
Taxation
Tax revenue at end-Q1 2019 is €12,795 million.14 Tax revenue, as a whole, was €157 million or 1.2% above profile at
end-March and was €843 million (7.1%) over the same period in 2018. While there is an overall variance of 1.2% from
profile, individual taxes experienced significant variance both above and below profile, and these can cancel each other
out when the cumulative figure is calculated. Above profile taxes include:
n Corporation Tax was €267 million or 103.8% above profile;
n Capital Gains Tax was €24 million or 16.3% above profile;
n Capital Acquisitions Tax was €5 million or 12.6% above profile;
n Customs were €8 million or 9.6% above profile;
n Motor Tax was €3 million or 1.3% above profile;
n Excise duties were €30 million or 2.2% above profile; and
n Other tax revenue was €35 million (unprofiled).
14 The exact tax receipts to end Q1 2019 are detailed in ‘Monthly Trend’ on the Finance Databank. Herein the Fiscal Monitor is relied upon;
however, it should be noted that the practice of rounding to the nearest million in the Fiscal Monitor may introduce minor inconsistencies.Quarterly Economic and Fiscal Commentary
In total, these taxes are €374 million above profile. However this is partially offset by below profile outturn totalling
€217 million in the case of the following (see footnote 14):
n Stamp duties were €24 million or 6.9% below profile;
n Income tax (including USC) was €171 million or 3.3% below profile; and
24 n VAT was €22 million or 0.4% below profile.
Figure 15 illustrates the performance against profile for Taxation and other Central Government revenue in Q1 2019
in monetary and percentage terms respectively. These figures illustrate the variance of receipts from profile
i.e. how close actual taxation and revenue were to projections (profile).
Figure 15: Taxation and other Central Government revenue Q1 2019 – Variance from Profile
Corporation Tax
Other
Excise
Capital Gains Tax
Other A-in-As (inc. Departmental Balances)
Customs
Quarterly Economic and Fiscal Commentary
Capital Acquisitions Tax
Motor Tax
Fund Receipts (PRSI)
National Lottery
VAT
Stamps
Fund Receipts (NTF)
Income Tax (including USC)
-€200 -€100 €0 €100 €200 €300
Millions
Note: ‘Other’ is the sum of ‘Other Tax Revenue’, ‘Other Non-Tax Revenue’, and ‘Other Capital Resources’.
Given the early point in the year, it is not possible to come to any definitive conclusions about the overall tax revenue
in 2019.
Corporation Tax is well in excess of profile (103.8%); however, it is just 1.6% (€9 million) less than in the same period
in 2018. In Figure 15, above-profile receipts in Corporation Tax alone (€267 million) outweigh the cumulative below-
profile performance of tax heads (€263 million) in Q1. This continues the 2018 trend, discussed in Box 1 (p.20), of
unexpected increases in Corporation Tax revenue. Had Corporation Tax performed to profile, overall tax revenue would
be €110 million under profile. There are ongoing questions regarding the accuracy of the profiling of Corporation TaxQuarterly Economic and Fiscal Commentary
revenues. In the infographic Exchequer Revenue: Significant Months (March 2019) the PBO illustrated that the most
significant months for corporation tax are June and December; performance of Corporation Tax in Q2 and Q4 are
therefore expected to be the primary drivers of end-year performance.
The main transactional taxes (i.e. Stamp Duty and Excise Duty) are showing mixed performance against profile in Q1;
the former being under profile and the latter being over. 25
The range of measures contained in the Finance Act 2018, and their likely impacts on tax revenue in 2019 were
projected by the Department of Finance in Budget 2019: Tax Policy Changes (2018). The tax policy changes had a net
projected yield of €389.3 million in 2019. A significant contributor to that net yield is the increase in the VAT rate on
tourism activities to 13.5% (with the exception of newspapers and sporting facilities) with an anticipated yield in 2019
of €466 million.
Notwithstanding an increase in VAT to be paid by the hospitality sector effective from January 2019, VAT receipts in
Q1 2019 are 0.4% (€22 million) under profile. VAT receipts are however 6.6% (€310 million) greater than in Q1 2018.
Appropriations-in-Aid
Appropriations-in-Aid are €22 million below profile. The variations are as follows:
n Receipts from the National Training Fund Levy are €46 million or 38.5% below profile.
Quarterly Economic and Fiscal Commentary
This is partially offset by above profile revenue in:
n Other Appropriations-in-Aid including departmental balances is €21 million or 3.6% above profile; and
n Receipts from PRSI are €2 million or 0.1% above profile.
Variance from profile is most significant in Receipts from the National Training Fund Levy both in terms of quantum and
percentage. Receipts from the National Training Fund are down €41 million year-on-year notwithstanding an increase
in employer contribution to the National Training Fund levy which was projected to contribute an additional €69 million
to yield in 2019.15
Variance is significant in Other Appropriations-in-Aid including departmental balances; however, these are not broken
down in either the Fiscal Monitor or the Exchequer analytical statement. This has the effect of obscuring what exactly
is driving above profile receipts in this area.
The variance in Other Appropriations-in-Aid including departmental balances is not broken down in the Fiscal Monitor.
This has the effect of obscuring what exactly is driving above profile receipts in this area.
Non-tax revenue and Capital Resources
Non-tax revenue and Capital Receipts are slightly below profile by €5 million or 2.9%. This was a result of the under
profile performance of ‘Other’ non-tax revenue including Capital Resources of €122 million (€5 million (4.1%) under
profile).
15 Department of Finance, Budget 2019: Tax Policy Changes (2018) p.7You can also read
