Press release
Opening Statement by Mr John Hogan, Secretary General to Public Accounts Committee
Published on
Last updated on
Published on
Last updated on
Check against delivery
Thank you Chairman and members of the Committee for affording me the opportunity to address you this morning.
With me today are John McCarthy, the department’s Chief Economist, Emma Cunningham, Head of Tax, Des Carville, Head of the Shareholding and Financial Advisory Division, Scline Scott, Head of Corporate Affairs, and Laurna Cunningham, Finance Officer.
I will focus on the specific items on today’s agenda and keep my comments brief.
Today’s agenda covers the Appropriation Accounts 2021, the Financial Statements 2021, and Chapters 1, 2 and 22 of the Comptroller and Auditor General’s (C&AG) Report on the Accounts of the Public Services 2021.
Before beginning I’d like to firstly thank the Comptroller and Auditor General (C&AG). We are always grateful to his office for the engagement and assistance we receive in ensuring that the department produces accounts that meet the highest standards in public accounting.
The estimate for the Department of Finance for 2021 was set at €40.66 million, or €39.51 million net of appropriations-in-aid available.
The gross outturn spend for the year was just over €36.3 million, €4.28 million or 10.5 per cent under the available allocation. As a result, the department surrendered €4.28 million to the Exchequer.
The end-year surplus arose for a number of reasons:
With regard to the Exchequer Financial Outturn for 2021, I would draw the Committee’s attention to the following key points:
Despite the continuing impact of the pandemic, tax revenues held up well, rising by €11 billion or 20 per cent on 2020. The two key drivers of the better-than-expected performance were income tax and corporation tax.
Income tax is the largest tax head, accounting for 39 per cent of overall tax revenues in 2021. Taxes in the year were €26.7 billion, almost €4 billion higher than 2020.
The strong performance in income taxes was very encouraging. The economy in general, and the labour market in particular, adjusted well to the imposition of public health restrictions. Generally speaking, the economic impact of each successive round of restrictions was less severe than in previous periods.
The critical role of the government’s main income and business support measures — the Pandemic Unemployment Payment (PUP), the Employment Wage Subsidy Scheme (EWSS) and the Covid Restrictions Support Scheme (CRSS) —should not be underestimated. Despite their significant costs, in the absence of such measures, the position for households, businesses and the economic situation, including the public finances would have been far worse.
Corporation tax receipts once again over-performed, mainly due to high levels of profitability in a number of key sectors. Committee members will be aware that the Department of Finance published a paper in September this year titled ‘De-Risking The Public Finances – Assessing Corporation Tax Receipts’. The paper estimated that the level of corporation tax revenue at-risk in 2021 could be in the region of €4-6 billion.
The fiscal metrics published with Budget 2023 reflect this underlying vulnerability. The general government balance adjusted for ‘excess CT’, or GGB*, will be reported in all future documentation.
The domestically focussed tax heads also recovered strongly as public health restrictions eased. VAT receipts increased by 24 per cent, for example.
On the expenditure side, total net voted expenditure was €71.6 billion, an increase of some €3.7 billion, or 5.5 per cent on 2020.
Moving to the chapter on the banking stabilisation measures.
I note that the estimated cost has increased from €41.7 billion at end-2018, to €45.7 billion at end-2021. The increase was primarily due to the value of the State’s investments in the three banks falling over this time, from €8.4 billion to €4.9 billion.
The most significant costs to the State at the end of 2021 were in respect of IBRC, which had a net estimated cost of €37.3 billion, the vast majority of which will unfortunately never be recovered.
Of the three remaining banks, we have made good progress on reducing our shareholding during 2021 and 2022. To date, €21.1 billion has been recovered in cash by way of disposals, investment income and liability guarantee fees. As part of this activity, the State has fully disposed of its investment in Bank of Ireland. The remaining investments in AIB and PTSB are currently valued at c. €5.3 billion.
In addition to fully divesting it’s holding in Bank of Ireland, the State’s investment in AIB has reduced from 71.1 per cent to 57 per cent this year. Following NatWest’s acquisition of a 16.7 per cent stake in PTSB, the State’s investment has reduced from just under 75 per cent to 62.4 per cent. The sale of the PTSB shareholding to Natwest was part of the transaction that led to PTSB acquiring residential mortgages from Ulster Bank.
Turning to the Ireland Apple Escrow Fund, the Committee is aware that as part of the European Commission’s decision of August 2016, Ireland was ordered to recover, from Apple, the alleged State aid plus interest, related to a ten-year period from 2003 up to 2014. Notwithstanding Ireland’s appeal against the Commission’s decision, the Irish Government complied with its obligation to recover the sum of €13.1 billion, plus interest of €1.2 billion.
The Minister for Finance agreed with Apple that the amounts collected would be held in an escrow fund until the legal process is completed. The Ireland Apple Escrow Fund was established under the terms of a formal agreement between the Minister for Finance and Apple, pending the final outcome of legal challenges to the findings of a State aid investigation undertaken by the European Commission.
The investment and management of the fund is jointly overseen by the Minister and Apple, with the Minister’s functions delegated to the NTMA. The financial statements for 2021 published on 7 July 2022, set out that the net assets of the Fund as at 31 December 2021, totalled €13.63 million.
The year on year reduction in the balance on the account is primarily due to a third country adjustment of €246 million, which was transferred from the Fund.
There were also significant negative interest charges over recent years, charges that will now likely not apply given the new interest rate environment.
As Committee members will know, 2021 was a very challenging year. Families all over the country lost loved ones; front line workers bravely continued to go to work to ensure the safety and health of the rest of us; and economic and social life was heavily curtailed.
I’d like to take this opportunity to express my appreciation to the staff of the department for their work during this period. Thankfully, much of the work of the department could be done from home, however, staff members continued to service in person various Oireachtas committees, as well as attend on site to produce the department’s set-piece programmes of work such as the Budget and Finance Bill.
As the worst impacts of the pandemic receded earlier this year, the optimism that accompanied it was quickly tempered by the fallout from the invasion of Ukraine.
The energy crisis precipitated by the war has led to an inflationary environment not seen in decades.
As prices rise, the government has sought to protect the most vulnerable.
The Department of Finance is at the forefront of these efforts. Budget 2023 introduced a number of measures via the tax system to protect people’s incomes and alleviate some of the pressures individuals, families and businesses are facing.
The department has also led the implementation of financial market sanctions against Russia. Officials from the department continue to work with colleagues from across the civil and public service to ensure sanctions are severe for the individuals and companies they target.
Finally, the government is committed to supporting Ukrainians as they flee the horror of the war. The department will continue to do what it can to support that effort.
Chairperson, the global economic environment has worsened considerably since my last appearance before this Committee. Rising energy prices have translated into higher prices for food, clothing and basic services across the world. Reduced real incomes, falling consumption and a slowdown in investment will likely lead to recessions in some of our key trading partners.
Although better placed than most, Ireland is not immune to these global trends. At Budget 2023, the department revised down the forecast for Modified Domestic Demand (MDD) — which is the best measure of domestic economic conditions — by 2.7 percentage points, to just 1.2 per cent in 2023. Inflation is estimated to average just over 7 per cent next year and 2.4 per cent in 2024, considerably higher than in recent years.
The European Central Bank — like all central banks — has been forced to respond, raising interest rates over the last number of months. Increased rates will mean higher borrowing costs for individuals and businesses, dampening consumption and potentially leading to less investment across the economy.
In summary, the economic situation will worsen over the short to medium term.
In such uncertain times, the core mission of the department — which is to lead in the achievement of the government’s economic, fiscal and financial policy goals — is critically important.
The senior management team and I, will continue to work with Government to ensure those goals are achieved.
To conclude, I would like to thank the Chairman and Committee for your invitation to address the Committee today, as well as for your attention and welcome any follow-on questions.