The "extensive shortfalls" in recent years between revenue forecasts and actual outcomes was not caused by a drop in the efficiency of the tax collection system, Mr John Purcell, the Comptroller and Auditor General (C&AG), was told.
Mr Purcell in his report said he asked the accounting officers in the Revenue and the Department of Finance whether the shortfalls were due to a weakness in the methodologies used. He said the projected income tax take to the end of August 2002 was €5,792 million but the actual outcome was €5,295 million. The accounting officer for Revenue had said this shortfall was the subject of ongoing research.
Some of the reasons for the €762 million shortfall in PAYE in 2001 had been identified and these included an underestimate in the cost of the 2001 Budget package of €203 million, and the cost of the Special Savings Incentive Accounts (SSIAs), which was not factored into the Budget.
Low economic growth had led to a lower than expected increase in employment during 2001, the official said. He said most taxes were performing reasonably well in 2002, apart from income tax. The officer told the C&AG that revenue forecasting could not be an exact science as it was based on factors which were themselves forecasts, such as economic growth.
The accounting officer for the Department of Finance said the main reason for the shortfall in tax receipts was the lower than expected level of economic growth. The forecasts were based on the latest economic data available nationally and internationally, the officer said. One factor which affected the 2001 outcome was the decrease in the average hours worked per week, which in the construction and industrial sector amount to one hour or more.
In relation to income tax, the cost of the income tax reductions introduced in the 2001 Budget had to be revised upwards "by €300 million in a full year".
He also said the substantial changes introduced in recent budgets may have affected patterns in ways which had no "history" on which to ground estimates of impact.
"He said that substantial changes in the tax regime of recent years may have generated effects of that kind, the impact of which would only be determinable as later years' tax data became available for analysis." In relation to 2002, the accounting officer said that tax receipts to the end of June were down 7.1 per cent compared to receipts during the same period last year.
"However, he pointed out that the due date for June Corporation Tax had fallen on Friday 28th June and that payments of the order of €1 billion had been received on July 1st in relation to the June period. An adjustment for that timing factor left tax revenue at roughly the same level as 2001."
Tax receipts for the first half of 2002 had been affected by a number of factors.
These included the change in the income tax year and the cost of the SSIAs. The scheme cost €170 million in the first six months of this year, compared to €2 million last year.
"Looking forward to the second half of the year, the Department of Finance expected revenue to improve in response to a stronger economy. Nevertheless it is expected that tax revenue for the year as a whole would be of the order of €500 million less than the Budget estimate."
