Prepared by David J. Ordoobadi.
A retrospective of Ireland’s fiscal adjustment in the 1980s was provided in SM/94/125. (5/25/94).
The income elasticity of tax revenue averaged 1.2 during the period, and 1.03 after netting out tax amnesty proceeds.
These “savings” represent the accumulation of lower-than-budgeted debt service payments held for allocation in subsequent years. The residual savings of IR£59 million were allocated to the 1995 budget.
Expenditure restraint was facilitated by two nonrecurrent factors. First, Departmental cash balances of IR£58 million available at end-1994 were treated as a negative expenditure in the 1995 budget. Second, the IWO million in pension fund restructuring payments that were shifted to 1994 from 1995 were included in the base for calculating the 6 percent expenditure ceiling. Together, these one-off factors represent 0.3 percent of estimated 1995 GNP.
Tax cuts adopted in the 1995 budget are expected to reduce revenue by IR£213 million (0.6 percent of GNP) in 1995 and by IR£411 million (1.2 percent of GNP) over a full year. Tax increases are expected to yield IR£54 million (0.2 percent of GNP) in 1995 and 1’1(09 million (0.3 percent of GNP) over a full year.
The standard corporation tax rate applies to all firms not engaged in manufacturing or certain internationally traded services, for which a 10 percent rate applies.
The abolition of university fees offsets the loss of this shelter.
Local loan fund assets will be securitized and sold to generate capital income sufficient to offset the increased current spending.
The Government is committed to increasing social welfare benefits to the minimally adequate rate recommended by the Commission on Social Welfare (see below). As a result, real social welfare benefits have increased rapidly.
The amounts involved for the compensation to blood recipients and for EU reimbursement are subject to judicial decision and discussion with the EU, respectively, and are therefore uncertain. However, these contingent liabilities coupled with the payments associated with the court ruling on arrears to married women welfare recipients could represent as much as 1 percent of GNP.