This paper discusses Ireland’s Fiscal Transparency Assessment. The Irish government has ambitious plans to improve further the timeliness, quality, and comprehensiveness of its budgets, statistics, and accounts. Ireland has the capacity and information to bring its fiscal transparency practices into line with international best practice standards within a reasonable time frame, and at relatively modest additional cost. The Irish administration already incurs many of the fixed and ongoing costs associated with modern accrual-based accounting, and risk-based fiscal management. Fiscal reporting in Ireland is characterized by a high degree of disclosure but also a high degree of fragmentation.


This paper discusses Ireland’s Fiscal Transparency Assessment. The Irish government has ambitious plans to improve further the timeliness, quality, and comprehensiveness of its budgets, statistics, and accounts. Ireland has the capacity and information to bring its fiscal transparency practices into line with international best practice standards within a reasonable time frame, and at relatively modest additional cost. The Irish administration already incurs many of the fixed and ongoing costs associated with modern accrual-based accounting, and risk-based fiscal management. Fiscal reporting in Ireland is characterized by a high degree of disclosure but also a high degree of fragmentation.

I. Fiscal Reporting

1.0. Introduction

1. Fiscal reports should provide a comprehensive, timely, reliable, comparable, and accessible summary of the government’s financial performance and position. To do so, fiscal reports, which comprise budget execution reports, fiscal statistics, and government accounts, should:

  • cover all institutional units engaged in fiscal activity;

  • capture all assets, liabilities, revenue, expenditure, financing, and other flows;

  • be published in a frequent and timely manner;

  • be classified according to an internationally recognized classification system;

  • reconcile any unexplained discrepancies within or between fiscal reports; and

  • be prepared by an independent agency (in the case of statistics) or scrutinized by an independent national audit institution (in the case of accounts).

2. Fiscal reporting in Ireland is characterized by a high degree of disclosure but also a high degree of fragmentation. Ireland’s main in-year and annual fiscal reports cover different institutions, include different flows and stocks, are prepared on different accounting bases, and are classified according to different standards. Ireland’s main summary fiscal reports, summarized in Table 1.1, comprise:

  • monthly budget execution reports, in the form of the Department of Finance’s (DoF’s) traditional Exchequer Statements which cover only the cash inflows and outflows of the central government’s main treasury account, the Central Fund, and the recently developed Alternative Exchequer Statement, which extends the coverage to the Social Insurance Fund (SIF) and National Training Fund (NTF). Both reports follow a traditional classification which conflates “above the line” nonfinancial and “below the line” financial transactions;3

  • quarterly fiscal statistics published by the CSO and CBI which provide data on ESA95 general government borrowing and debt but not revenue and expenditure;

  • semi-annual Excessive Deficit Procedure (EDP) notification produced by the CSO which provides more detailed information on the composition of ESA95 general government borrowing and debt;

  • annual fiscal statistics which are published by Eurostat with a one quarter lag and provide a more detailed summary of ESA95 general government revenue, expenditure, deficit, and debt;

  • annual Finance Accounts which provide a cash-based record of the transactions of the Central Fund as well as supplementary information on financial assets, national debt, guarantees, and derivative holdings; and

  • annual Appropriation Accounts which provide a cash-based outturn and include in the notes an operating cost statement and a partial balance sheet for each of the 40 appropriations (“Votes”) authorized by Parliament in the annual budget Estimates,4 but do not combine them into a consolidated statement for the central government as a whole.

Table 1.1.

Ireland: List of Fiscal Reports

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Note: BCG: Budgetary Central Government; CG: Central Government, GG: General Government

3. This chapter assesses the quality of Ireland’s fiscal reporting practices against those set out in the IMF’sFiscal Transparency Code. In doing so it separately considers the following dimensions of fiscal disclosure:

  1. coverage of institutions, stocks, and flows;

  2. frequency and timeliness of reporting;

  3. quality and consistency of fiscal reporting; and

  4. reliability of fiscal reports.

1.1. Coverage of Fiscal Reports

1.1.1. Coverage of public sector institutions (Good)

4. Ireland’s public sector comprises 624 separate institutional entities. Table 1.2 lists the number of institutional units in each sub-sector of the public sector and shows that:

  • budgetary central government (“the Exchequer”) comprises the 40 central government departments and offices who have their expenditure authorized by Parliament through the annual Estimates/Appropriations and other constitutionally independent entities funded through standing charges on the Central Fund, such as the Oireachtas (Parliament) and judicial salaries;

  • extra-budgetary central government comprises 128 entities including 2 social security funds (the Social Insurance Fund and National Training Fund), 43 extra-budgetary funds, and 83 non-market semi-state agencies. Most of these entities receive some direct grant from the Exchequer in addition to revenue they raise through investment income, fees, and charges;

  • local government comprises 391 entities, including 114 local authorities, 10 regional authorities/assemblies, and 34 entities in the vocational education sector. All these depend largely on grants from central government for revenue. There are also 233 local public enterprises that are subsidiaries of local authorities; and

  • public corporations, which are majority public owned or controlled, comprise 62 entities of which 57 are nonfinancial corporations and 5 are financial corporations (including the Central Bank of Ireland).

Table 1.2.

Ireland Public Sector: Institutional Composition and Finances, 2011

(Percent of GDP)

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Source: Staff estimates derived from Ministry of Finance internal data and company annual reports.

5. Ireland’s public sector accounted for around 60 percent of GDP by expenditure in 2011. Table 1.2 also summarizes the distribution of public resources across the different sub-sectors of the public sector in 2011 and shows that:

  • central government expenditure accounts for 43 percent of GDP of which 30 percent of GDP flows through the central government budget, 6 percent comes from the two social security funds, 3 percent is spent through various extra-budgetary funds (principally the National Pension Reserve Fund), and another 3 percent is spent by non-market semi-state agencies such as the National Roads Authority, Irish Rail, and Radio Telefis Eireann (RTE);

  • local government accounts for 5 percent of GDP, though this includes only the direct expenditure of the authorities themselves and not their enterprises;

  • general government, which consolidates central and local governments and is the reporting entity for European fiscal statistics and surveillance purposes, accounts for 48.6 percent of GDP; and

  • public corporations account for a further 12 percent of GDP of which 6 percent of GDP is spent by financial corporations, and another 6 percent comes from non-financial corporations.

6. Ireland’s most comprehensive fiscal reports cover the consolidated general government in line with EU reporting requirements. The CSO’s quarterly and annual fiscal statistics for the general government account for 81 percent of public sector expenditure. However, monthly fiscal reports confine themselves to the cash receipts and payments of the Exchequer which accounts for just 70 percent of public sector expenditure. Budget documentation in the form of the Stability Program Update (SPU), Medium-Term Fiscal Statement (MTFS), and Budget Economic and Fiscal Outlook include a reconciliation (or “walk”) from the annual Exchequer to general government balance but do not do the same for gross expenditure and revenue. A clearer understanding of the relationship between gross Exchequer expenditure and gross general government expenditure will be essential if Ireland is to ensure that budgetary decisions are consistent with the new general government expenditure benchmark included in the EU’s “Six Pack” of fiscal governance reforms.

7. Ireland’s relatively large public corporations sector remains outside both Finance Accounts and fiscal statistics as shown in Figure 1.1. The 19 percent of public expenditure by public corporations is dominated by public utilities such as the Electricity Supply Board, Bord Gais (Gas Board), and Coras Iompair Eireann (CIE or Irish Transport Authority), the four financial institutions (IBRC, NAMA, Allied Irish Bank, and Irish Life and Permanent) acquired by the government in the wake of the 2008 financial crisis, and the Central Bank of Ireland.5

Figure 1.1.
Figure 1.1.

Ireland: Coverage of Public Sector Institutions in Fiscal Reports

(Percent of Expenditure)

Citation: IMF Staff Country Reports 2013, 209; 10.5089/9781484303924.002.A001

Source: Staff estimates.

8. Expanding the institutional coverage of Ireland’s fiscal reporting from the general government to encompass the entire public sector results in a modest improvement in the overall balance in 2011. Public corporations add a further 12 percent of GDP to expenditure and 15 percent of GDP to revenue, reducing the overall balance from 13½ percent of GDP to 11 percent of GDP. This is due in large part to the operating profits (before impairments) being made by government-controlled financial corporations. However, as discussed in more detail in the next section, while the revenues and expenditure of Ireland’s public corporations make a relatively modest contribution to public sector flows, their liabilities (and assets) are very large both relative to the liabilities of the Irish government and compared with the public corporations sector of other advanced countries (Figure 1.2). Understanding the financial position of these entities and their relationship with the government is critical to understanding the overall financial position and sustainability of Ireland’s public sector.

Figure 1.2.
Figure 1.2.

Ireland: Public Sector Gross Liabilities

(Percent of GDP)

Citation: IMF Staff Country Reports 2013, 209; 10.5089/9781484303924.002.A001

Source: Staff estimates, national budgets.

1.1.2. Coverage of assets and liabilities (Good)

9. The Irish public sector’s holdings of assets and liabilities are large and have expanded considerably since the 2008 crisis. As shown in Figure 1.3, Ireland’s public sector asset holdings are estimated to be around 317 percent of GDP and its liabilities are estimated to be around 386 percent of GDP in 2011. Within this:

  • general government has financial assets of 39 percent of GDP and recognized liabilities of 106 percent of GDP, the bulk of which is central government debt;

  • central and local governments have additional unrecognized liabilities of 73 percent of GDP in unfunded public service pension and PPP obligations, though this estimate dates back to 2009, the last time the liability was calculated;

  • central government’s recorded holdings of fixed assets are relatively modest at 9 percent of GDP, though their value is likely underestimated due to the fact that they are held at historic cost on department’s balance sheets;

  • local government fixed assets account for 64 percent of GDP with roads and housing accounting for 35 and 13 percent respectively;

  • public corporations have 192 percent of GDP in liabilities to the private sector but these are matched by 192 percent of GDP in fixed and financial assets; and

  • intra-public sector holdings are substantial. Government equity holdings in all public corporations, public corporations’ holdings of central government and NAMA bonds, and CBI Emergency Liquidity Assistance to public banks amount to 170 percent of GDP. Failing to take these crossholdings into account would provide an exaggerated picture of the public sector’s liabilities.

Figure 1.3.
Figure 1.3.

Ireland: Public Sector Balance Sheet and Coverage in Fiscal Reports

(Percent of GDP)

Citation: IMF Staff Country Reports 2013, 209; 10.5089/9781484303924.002.A001

Source: Staff estimates.

10. Ireland’s estimated public sector net liabilities were 69 percent of GDP in 2011, not particularly high by advanced country standards. As shown in Figure 1.4, the UK public sector and US Federal Government have higher net liabilities, reflecting large public sector pension obligations and the fact that a sovereign government’s greatest asset—the ability to tax—is not reflected in its balance sheet. There is also some reason to believe that the current net worth of the Irish public sector is actually higher than the estimate in Figure 1.4 on the grounds that:

  • central and local government public service pension liabilities were last estimated in 2009, prior to a series of significant structural reforms designed to improve the sustainability of the pensions regime; and

  • central and local government holdings of fixed assets could be undervalued as most are recorded at historic costs on department and local government balance sheets.

Figure 1.4.
Figure 1.4.

Public Sector Net Worth in Selected Countries

(Percent of GDP)

Citation: IMF Staff Country Reports 2013, 209; 10.5089/9781484303924.002.A001

Source: Staff estimates, national budgets and statistical agencies.
Figure 1.5.
Figure 1.5.

Gross Public Sector Pension Liabilities in Selected Countries

(Percent of GDP)

Citation: IMF Staff Country Reports 2013, 209; 10.5089/9781484303924.002.A001

*Does not include local government pension liabilities.Source: Various national financial statements.

11. Ireland’s fiscal reports include relatively little consolidated balance sheet information. Annual Finance Accounts include separate statements on Exchequer loans outstanding, shareholdings in corporations and international organizations, guaranteed liabilities, and debt, but include no consolidated balance sheet. The Appropriation Accounts include a balance sheet of liabilities and financial and fixed assets for each Vote-funded department or agency, but, as mentioned above, the latter are recorded at historical cost, and they are not consolidated into an overall balance sheet for the central government. Only the CSO’s annual financial statistics present a consolidated financial balance sheet for the general government, which accounts for only 28 percent of the liabilities and 36 percent of the assets of the public sector (Figure 1.3). While there is currently no domestic in-year reporting on changes in government assets or liability holdings, the CSO plans to begin publishing a quarterly general government financial balance sheet from April 2013.

12. Changes in the assets and liabilities of government-controlled financial corporations have had a major impact on the Irish public finances in the wake of the crisis, which are not fully captured in current fiscal reports. The 2011 C&AG Audit Report identified €43 billion (27.5 percent of 2010 GDP) in capital provided to government-controlled credit institutions between 2008 and 2010 and the need for a further €18.8 billion (12 percent of GDP) in capital injections. More recently, the government agreed to sell its 100 percent equity stake in Irish Life in exchange for €1.3 billion (0.8 percent of GDP) in cash, subject to receipt of regulatory and competition approvals. However, as Ireland’s fiscal reports cover only the general government and include limited real-time balance sheet information, government and the public are only provided a partial view of the fiscal implications of these transactions.

1.1.3. Coverage of revenue, expenditure, and other flows (Basic)

13. Ireland’s core fiscal reports are cash-based, but some accrual flows are captured in fiscal statistics, in supplementary disclosures in the accounts of individual departments, and in local government accounts. DoF’s monthly Exchequer Statements and annual Finance Accounts present only the cash inflows and outflows of the Central Fund account. While annual departmental Appropriation Accounts are also primarily cash-based, they do present some accrual flows such as payables and receivables, depreciation, inventories, and provisions for contingent liabilities. The CSO’s quarterly and annual general government fiscal statistics include payables, receivables, and depreciation in line with ESA95 requirements. The net impact of these accrual adjustments in 2011 was to add a further 0.4 percent of GDP to revenue, take away 0.2 percent of GDP from expenditure, and reduce net lending by 0.6 percent of GDP (Table 1.3).

Table 1.3.

Ireland: Cash to Accrual Adjustments

(Percent of GDP)

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Source: CSO, DoF, and staff estimates.

14. Nonetheless, other significant accrued flows remain outside summary fiscal data or are based on statistical models rather than accounting data. Most of these missing flows are linked to changes in the value of assets and liabilities that are also missing from government balance sheets.6 These include:

  • the annual net accrual of public service pension liabilities—including the net accrual of liabilities less cash payments of previously accrued liabilities plus the nominal interest on unfunded liabilities—estimated by staff at €1 billion (0.7 percent of GDP) in 2011 which is not reflected in any summary fiscal report;

  • annual investments in PPPs under construction which are estimated at €0.7 billion (0.4 percent of GDP) in 2010 but which fell to zero in 2011 as existing projects were completed and no new projects were initiated. Unlike the unitary charges associated with completed PPP projects, these are not reflected in statistics and accounts;

  • accurate figures for depreciation of fixed assets. The CSO’s estimated depreciation of €2.5 billion (1.6 percent of GDP) in 2011 general government fiscal statistics is based on a perpetual inventory model and not taken from the fixed asset registers maintained by central and local government departments. The difference between the two figures amounted to 1.4 percent of GDP in 2011; and

  • valuation changes on the government’s substantial holding of financial assets, which amounted to a loss of €5.4 billion (3.4 percent of GDP) in 2011, are captured in government financial statistics but not in the government’s Finance or Appropriation Accounts.

1.1.4. Tax expenditures (Basic)

15. Ireland publishes information on the estimated revenue foregone from some but not all tax expenditures. The Revenue Commissioners’ Annual Statistical Reports includes a list of the revenue foregone from income and corporation tax allowances, reliefs, and deductions for 2009. However, the cost of targeted exemptions, reduced rates, credits, or allowances related to other taxes such as VAT, CGT, or stamp duty are not included. More comprehensive, independent estimates of the size of tax expenditures in Ireland put the net revenue foregone from all direct and indirect tax allowances, reliefs, deductions, and rebates at around 6 percent of GDP or 18 percent of the total tax take in 2006.7 This revenue loss is large by the standards of other OECD countries, as shown in Figure 1.6. Some of the most fiscally significant reliefs—such as CGT exemption on principal private residences, mortgage interest income tax relief, and property investment incentives—likely contributed to the residential property boom that preceded the 2008 crisis and have since been substantially curtailed or abolished.

Figure 1.6.
Figure 1.6.

Revenue Loss from Tax Expenditures

(Percent of GDP)

Citation: IMF Staff Country Reports 2013, 209; 10.5089/9781484303924.002.A001

Source: Collins and Walsh (2010)

1.2. Frequency and Timeliness of Fiscal Reporting

1.2.1. Frequency of in-year reports (Advanced)

16. Ireland’s budget execution reports are produced with a high degree of frequency and timeliness but general government statistics are available only on a quarterly basis. The DoF’s cash-based Exchequer statements are produced on a monthly basis and within two days of the end of each month. In-year reporting of some general government fiscal aggregates on ESA95 basis is scattered across a number of different publications including (i) the CSO’s quarterly nonfinancial accounts; (ii) the CSO’s quarterly national accounts; and (iii) the CBI’s quarterly financial accounts. However, from April 2013, the CSO will begin publishing an accrual-based general government flow statement and balance sheet on a quarterly basis with a three-month lag. In line with the requirements of the EU Six Pack, the DoF also plans to begin publishing monthly cash-based general government flow data from 2014.

1.2.2. Timeliness of annual financial statements (Good)

17. Ireland’s audited annual accounts of central government are published within nine months of the end of the financial year. Ireland produces two sets of audited annual accounts. The Appropriation Accounts are prepared for each Vote by the respective Accounting Officers by end-March and audited by the C&AG by end-September each year. The Appropriation Accounts compare the Supply Estimate voted by Parliament for each Department under the Appropriation Act with the actual payments made and receipts brought to account, and explains any substantial differences. The Finance Accounts, which are produced by end-June and audited by the C&AG and published by end-September each year, provide a record of cash receipts and issues of the Exchequer Central Fund and the issuance and redemption of national debt. The current nine-month lag between the end of financial year and publication of the audited year-end accounts, while in accordance with the statutory timetable, is longer than other developed countries. It offers limited opportunity for their use in the preparation of next year’s budget which, under the government’s revised timetable, will be submitted to Parliament in October from this year. The Irish authorities intend to improve the timeliness of annual central government accounts, but no formal decision has been taken. Audit of local government accounts is performed by the Local Government Audit Service and there is currently a 15-month lag between the end of the financial year and the completion of the audit.

1.3. Quality of Fiscal Reports

1.3.1. Classification (Good)

18. Fiscal statistics comply with ESA95 classifications for aggregates reporting despite multiple and inconsistent charts of accounts being used by different general government entities. The statistics produced by the CSO under the EDP procedure, e.g., the Maastricht Returns, meet the ESA95 classification requirements for reporting of fiscal aggregates such as general government balance and debt. On an annual basis, the CSO also produces data complying for the most part with GFSM 2001 economic classification for inclusion in the IMF’s Government Finance Statistics Year Book. The Exchequer Statement and Finance Accounts present data using a more traditional presentation which conflates financial (below the line) and nonfinancial (above the line) transactions, making it difficult to reconcile them with ESA95 statistics for general government (Table 1.4). Annual departmental Appropriation Accounts present information in two formats: one which follows the administrative and economic categories set out in their budget Estimate and one which follows an adaptation of private sector Financial Reporting Standards for the UK and Ireland that broadly meets international standards with minor gaps. Local governments follow their own classification system set out in the Local Authority Accounting Code of Practice. Non-commercial semi-state bodies and public corporations have their own charts of accounts which do not map directly to those used by either central or local government.

Table 1.4.

Ireland: National Classification vs. International Standards

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19. The lack of harmonization between the charts of accounts for all general government entities is an obstacle to the production of more detailed, timely, and reliable fiscal data for the general government. Collection and consolidation of ESA95 general government data for fiscal surveillance purposes cannot be done directly from the accounting systems used by central government departments, local governments, and other general government entities. Instead it requires extensive manual manipulation to reclassify data and consolidate out intra-governmental stocks and flows. This increases the risk of double counting of assets and liabilities across general government units, as happened in the case debt issued by the NTMA to the Housing Finance Agency which was mistakenly counted as being held outside the general government between 2007 and 2011. This resulted in Ireland’s general government gross debt being overstated by €3.6 billion (2.3 percent of GDP) at the end of 2011. Detailed control reviews and improvements have occurred since then, including three published reports into the error. The lack of a comprehensive and exhaustive program classification also blurs the line of sight between policy objectives, resource allocations, expenditures, and outcomes and makes it difficult to prepare COFOG-based statistics on the functional distribution of expenditure without resort to estimation.

1.3.2. Internal consistency (Good)

20. Ireland regularly publishes two of the three internal consistency checks called for under the Code. The April SPU and September MTFS include a reconciliation of the difference between the Exchequer borrowing requirement (EBR) and the annual change in the stock of general government debt for the current year and the next five years. The NTMA’s Annual Report includes a complete reconciliation of the Exchequer surplus and the net Exchequer borrowing for the two previous years. While the Central Bank of Ireland collects and publishes data on both the issuance of central government debt and reported holdings of government debt by other sectors of the economy, there is no published reconciliation between the two. In the absence of a harmonized chart of accounts across general government entities, such a reconciliation of data for the stock of government debt in non-government hands would provide a further opportunity to identify and correct the kind of double-counting of general government debt mentioned above.

1.3.3. Historical consistency (Basic)

21. Ireland discloses revisions to fiscal aggregates in later vintages of published data, and revisions to debt and deficit have generally been in a downward direction. Ireland is required to report EDP-related data to Eurostat twice a year (in April and October) with any update to previously reported data on general government deficit and debt. The CSO has up to four years to provide final data on government deficit and debt figures in relation to first releases of these figures. As shown in Figure 1.7, between 2005 and 2011, Ireland’s general government deficit and debt have been revised down by an average of 0.2 and 0.5 percent of GDP respectively. This contrasts with the EU country average where deficits and debts have been revised up by 0.1 and 0.5 percent of GDP respectively for the same period (Figure 1.8). In reporting to Eurostat on revisions to historical fiscal data, the CSO also provides a supplementary table with an item wise breakdown of changes between the old and new time series. However, this supplementary table is not published either domestically or by Eurostat.

Figure 1.7.
Figure 1.7.

Ireland: Stock-Flow Adjustments

Citation: IMF Staff Country Reports 2013, 209; 10.5089/9781484303924.002.A001

Source: Eurostat
Figure 1.8.
Figure 1.8.

Ireland: Size of Historical Fiscal Data Revisions

(Percent of GDP)

Citation: IMF Staff Country Reports 2013, 209; 10.5089/9781484303924.002.A001

Source: Eurostat

1.4. Integrity of Fiscal Reports

1.4.1. Statistical independence (Advanced)

22. Fiscal statistics are independently produced and disseminated by the CSO which applies methodology and standards that are harmonized at EU level. The independence of the CSO, which is headed by a Director General and functions under the strategic direction provided by a National Statistics Board, is guaranteed by the 1993 Statistics Act. The CSO has the sole responsibility for the statistical methodologies and professional standards to be followed, the content of statistical releases and publications, and the timing and methods of dissemination of the statistics compiled. It also has the right of access, subject to some conditions, to administrative records held by public authorities for statistical purposes. The methodology used by the CSO for the compilation of statistics is available on its website. As the national statistical institute of Ireland, the CSO is an integral part of the European Statistical System and maintains close contact with Eurostat and the other statistical offices of the EU. Fiscal statistics produced by the CSO are regulated by the principles in the European Statistics Code of Practice, whose purpose is to ensure the quality and credibility of the data. As the responsible agency for production of quality general government statistics under the EDP, the CSO coordinates collection of fiscal data across various institutions and applies the required quality checks.

1.4.2. External audit (Advanced)

23. The annual Appropriation and Finance Accounts of the central government and annual financial statements of local governments are audited independently by the C&AG and the Local Government Audit Service respectively. Under Article 33 of the Irish Constitution, the C&AG is appointed by the President on nomination of the lower house of Parliament and can only be removed from office for misbehavior or incapacity and following a resolution passed by both houses of Parliament. The C&AG carries out the audit of both year-end accounts according to the procedures specified under the 1993 Comptroller and Auditor General (amendment) Act. The C&AG conducts financial audit based on International Standards of Supreme Audit Institutions (ISSAI)-compliant standards set for UK and Ireland. The Local Government Audit Service conducts the audit of the local government accounts based on their compliance with the Accounting Code of Practice set by the Department of the Environment, Community and Local Government.

1.4.3. Reliability (Good)

24. Ireland’s fiscal statistics meet the IMF’s Special Data Dissemination Standard (SDDS) and its annual accounts are subject to minor qualifications based on a “properly presents” standard. The CSO produces and publishes government finance statistics data in accordance with the SDDS requirements and it plans to move to SDDS+ in the near future. Upon completion of the audit of annual Appropriation Accounts, the C&AG attaches to each department’s account a certificate stating whether, in his opinion, the accounts properly present the receipts and expenditure related to the Vote concerned, and are prepared in accordance with the accounting rules and procedures laid down by the Minister for Public Expenditure and Reform. In forming the opinion, the overall adequacy of the presentation of the information in the appropriation accounts is evaluated. Some issues related to adequacies of record keeping (e.g., in respect to the Department of Social Protection) have led to minor audit qualifications in recent years. However, since Ireland’s government accounts do not follow any internationally recognized standard, the C&AG is only able to offer a “properly presents” audit opinion, which is also a statutory requirement, as opposed to the “give a true and fair view” audit opinion provided for accounts that follow IFRS or IPSAS. At the local government level, the auditor expresses an opinion as to whether the annual financial statement “presents fairly,” in accordance with the Accounting Code of Practice and Regulations, the financial position of the local authority at year-end and its income and expenditure for the year. As there is no practice of preparing central government year-end financial statements and subjecting them to audit, there is no audit opinion on the reliability of consolidated fiscal data.

1.5. Conclusions

25. In summary, Ireland’s fiscal reporting meets either good or advanced practices in most areas, though the whole is often less than the sum of the individual parts.Table 1.5 summarizes the quality of Ireland’s fiscal reporting relative to the standards set by the Fiscal Transparency Code as well as the relative importance of each area. This assessment highlights a number of areas where reporting can be improved. These include:

  • accounts and fiscal statistics limit their coverage to the Exchequer and general government respectively and do not fully reflect the significant financial activity of publicly-controlled corporations;

  • summary balance sheet data do not include the government’s significant fixed assets, public service pension liabilities, and PPP obligations;

  • associated accrual-based flows are also missing from summary fiscal reports and estimates of revenue loss from tax expenditures are incomplete;

  • general government entities use multiple and inconsistent classification systems and charts of accounts which complicates and delays the collection, consolidation, and reporting of the general government fiscal data needed to monitor the government’s performance against its national and EU fiscal rules; and

  • the timetable for submission and audit of annual financial statements is protracted and does not provide the government with audited outturn figures in time to inform the preparation of the annual budget which will need to be submitted in October starting this year.

Table 1.5.

Ireland: Summary Assessment of Fiscal Reporting

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Chapter IV includes a series of recommendations for how fiscal reporting can be enhanced in these areas through a combination of consolidating available fiscal information into a new set of more comprehensive summary fiscal reports and automating the collection of additional data through the modernization of underlying government accounting systems.

II. Fiscal Forecasting and Budgeting

2.0. Introduction

26. In most countries the government’s budget is the single most important fiscal document, receiving high levels of public and parliamentary attention. The budget sets out the government’s fiscal objectives and policies, demonstrates how those policies will impact the public finances, and seeks the legislature’s approval for the proposed levels of taxation and expenditure. It is therefore important that fiscal forecasts and budgets are based on credible forecasts of macroeconomic developments, provide comprehensive information on the government’s fiscal objectives and budgetary plans, are presented in a way that facilitates policy analysis and accountability, and are submitted in sufficient time for the parliament to scrutinize and approve them before the budget year begins.

27. Ireland’s budget follows the Westminster tradition, but has been evolving in line with European requirements over the past two decades. This has led to a gradual evolution away from cash-oriented, Exchequer-focused budgeting set on an annual basis toward setting fiscal objectives for the general government over the medium term. The crisis beginning in 2008 had a severe impact on Ireland’s public finances, with revenues collapsing and financial sector interventions placing a heavy burden on the public purse. In response to this, the government has further strengthened the budget process, introducing a new medium-term expenditure framework (MTEF) which includes a set of multi-year expenditure ceilings for each government department, legislating a new suite of fiscal rules and introducing an independent fiscal council.

28. Further improvements are planned, as Ireland brings its budget process into line with new EU requirements. The budget documentation will provide clearer linkages between the exchequer and general government fiscal aggregates as new national and EU fiscal rules necessitate management of not only the general government balance and debt but also gross expenditure and revenue. The date of budget submission will be brought forward to meet new European deadlines. More systematic reconciliations of changes to multi-year departmental expenditure ceilings will underpin the credibility of the new MTEF.

29. This chapter assesses the quality of Ireland’s current fiscal forecasting and budgeting practices relative to standards set by the IMF Fiscal Transparency Code. In doing so, it focuses on four main areas:

  1. the comprehensiveness of the budget and associated documentation;

  2. the timeliness of the budget and its passage;

  3. the policy orientation of budget documentation; and

  4. the credibility of the fiscal forecasts and budget proposals.

Table 2.1.

Ireland: Fiscal Forecasting and Budget Documents

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2.1 Comprehensiveness of Budget Documentation

2.1.1. Budget unity (Basic)

30. Ireland’s annual budget documentation (Table 2.1) still focuses primarily on the cash revenues and expenditures of the Exchequer, though it does include some contextual information about general government fiscal developments. The Finance Bill and Exchequer Estimates voted by the Parliament present the cash flows in and out of the Central Fund, and the financing of those flows. After excluding cash flows from “below the line” financial transactions such as repayment of loans, the Exchequer accounted for 91 percent of the revenue and expenditures of the consolidated central government in 2011. This includes the spending from the Social Insurance and National Training Funds although these are not voted by Parliament. Net expenditure is split between voted (87 percent of Exchequer spending) which is approved annually, and non-voted expenditure (13 percent of Exchequer spending) which includes debt service, EU-related spending, and various capital expenditures, and is appropriated on the basis of standing legislation.

31. There are some fiscally significant central government entities whose revenues and expenditures are not presented in the budget Estimates laid before Parliament. While these 58 extra-budgetary bodies receive 60 percent of their funding in the form of grants from central government departments, their own financed expenditure, which accounted for an additional €6.8 billion (4.3 percent of GDP) in 2011, is not presented to Parliament in the annual budget estimates.8 The most significant of these entities are:

  • The National Pension Reserve Fund (NPRF) which was initially established in 2001 to meet the costs of social welfare and public service pensions from 2025 onward, was funded through a combination of windfall revenue from the IPO of the State telecoms company, annual Exchequer contributions of 1 percent of GNP between 2001 and 2007, and income from its investments. However, over the last three years its €16.1 billion in assets in 2008 have been used to stabilize the financial sector through (its own source) capital injections of €13 billion (10.1 percent of GDP) into troubled banks. More recently the government has announced that it plans to use some of the NPRF’s €6 billion in non-Irish bank assets to fund investments in strategic industries and small and medium enterprises in Ireland.

  • Eligible Liabilities Guarantee Scheme, a temporary fund that was introduced in response to the crisis, guarantees deposits in excess of €100,000 and is funded through €1.2 billion (0.8 percent of GDP) in guarantee fees, though these are decreasing annually as the scheme is wound down.9

  • The National Roads Authority, which has responsibility for national roads, is funded primarily through a €1.6 billion (1 percent of GDP) contribution from the Exchequer and €100 million in toll fees.

  • Non-market semi-state bodies, such as Irish Rail and RTE, which operate as commercial enterprises have been classified within the central government boundary.

While the revenues and expenditures of these extra-budgetary entities are not included in the Exchequer Estimates approved by Parliament, their revenue and expenditure are captured in the overall general government fiscal aggregates.

32. In line with EU requirements, the budget documentation that accompanies the annual estimates presented to Parliament includes forecasts of the general government fiscal aggregates. In addition to figures for gross general government revenue and expenditure, the SPU and Budget Economic and Fiscal Outlook include a reconciliation (or “walk”) from the Exchequer balance to general government balance. However, there is no information provided on how Exchequer revenue and expenditure aggregates (which themselves include a mixture of nonfinancial and financial transactions) relate to the ESA95 general government expenditure and revenue aggregates which form the basis of Ireland’s new EU and domestic fiscal rules described in Section 2.3 below.

2.1.2. Gross budgeting (Basic)

33. The bulk of government revenues and expenditures are presented on a gross basis in budget documentation. All domestic tax revenues and Exchequer expenditures are presented on both a net and gross basis. However, while the spending from non-tax revenues collected by central government departments and agencies (known as “appropriations-in-aid”) is presented on a gross basis, the budget estimates do not include appropriations-in-aid or social contributions within the revenue estimates. At 7.5 percent of GDP, or 23 percent of revenue, Ireland’s non-tax revenues are relatively large as shown in Figure 2.1. Recognizing the need to provide a clearer picture of the gross Exchequer revenues and expenditures, the government now presents revenue on a gross basis in the revised estimates and in its new Alternative Presentation of the monthly Exchequer Statement. However, this presentation has not yet been extended to the annual budget documentation, making it difficult to compare budgets and outturn for Exchequer receipts.

Figure 2.1.
Figure 2.1.

Revenues Retained Outside the Budget

(Percent of Gross Expenditure)

Citation: IMF Staff Country Reports 2013, 209; 10.5089/9781484303924.002.A001

Source: Staff estimates, national budgets.

2.1.3. Macroeconomic forecasts (Advanced)

34. Ireland’s budget presents the macroeconomic assumptions underlying its fiscal forecasts in a clear, comprehensive fashion. The forecasts are presented in their most comprehensive form in the April Stability Program Update and November Medium-term Fiscal Statement, with the recent outturn and three year-ahead forecasts of key macroeconomic aggregates such as real GDP, the expenditure components of GDP, inflation, the unemployment rate, and GNP. There is a detailed discussion of the forecasts and underlying drivers of each of the components of GDP(E), such as consumption, investment, exports and imports, as well as a discussion around the difference between the GDP and the nationally-relevant GNP measure. The forecasts are then updated in the Economic and Fiscal Outlook which is published alongside the Budget Estimates in December, with any major revisions explained.

35. Abstracting from the impact of the crisis, Ireland’s macroeconomic forecast errors are relatively large but also are relatively unbiased. Ireland has one of the largest absolute forecast errors for GDP amongst the EU, although the major reasons for this are the high degree of volatility in the economy and the large scale of revisions to the GDP estimates (Figure 2.2). Despite this, in the decade leading up to the crisis in 2008, the DoF’s macroeconomic forecasts were slightly pessimistic on average and more cautious than most other European economies (Figure 2.3, where each column shows the average forecast error for the budget year, budget year +1 and +2), so provided a sound basis for fiscal policymaking, as the errors averaged out over the medium term. The same is largely true for the DoF’s forecasts of other key macroeconomic aggregates such as inflation and nominal GDP. Since the crisis, the DoF’s macroeconomic forecasts have adjusted quickly to the new state of the world, with relatively realistic assumptions for GDP growth since mid-2011 (Figure 2.4).

Figure 2.2.
Figure 2.2.

Average Real GDP Absolute Forecast Errors, 1998-2007

(Percent of GDP)

Citation: IMF Staff Country Reports 2013, 209; 10.5089/9781484303924.002.A001

Source: Staff estimates, European Commission.
Figure 2.3.
Figure 2.3.

Average Medium-Term Real GDP Forecast Errors, 1998-2007

(Percent of GDP)

Citation: IMF Staff Country Reports 2013, 209; 10.5089/9781484303924.002.A001

Source: Staff estimates, European Commission.
Figure 2.4.
Figure 2.4.

Real GDP Forecast History

(Constant Euro billions)

Citation: IMF Staff Country Reports 2013, 209; 10.5089/9781484303924.002.A001

Source: Staff estimates, European Commission.

2.1.4. Medium-term budget framework (Good)

36. Ireland’s fiscal forecasting record has been relatively cautious in the near-term but mixed over the medium term. Over the pre-crisis period 1998–2007, Ireland’s forecasts for general government revenue for the year ahead and over the medium term were relatively conservative, with revenues coming out better than forecast on average. The government tended to adhere to its annual expenditure limits for the year ahead during the period, resulting in larger than expected surpluses against the annual budget forecast (Figure 2.5). At the same time, the pattern of consistent positive surprises on the revenue side led to a gradual upward drift in the expenditure level from one medium-term forecast to the next in the run-up to the crisis. In the immediate aftermath of the crisis, the reduction in economic activity and resulting revenue loss, coupled with the spike in expenditures associated with the government’s financial sector interventions saw the actual general government balance fall well short of pre-crisis forecasts as in most other EU countries. However, as with the macroeconomic forecasts, the government’s fiscal forecasts have been relatively prudent since 2011 thanks, in part, to more credible medium-term expenditure forecasts.

Figure 2.5.
Figure 2.5.

Average Budget Balance Forecasting Error 1998–2007

(Percent of GDP)

Citation: IMF Staff Country Reports 2013, 209; 10.5089/9781484303924.002.A001

Source: Staff estimates, European Commission.

37. In the wake of the crisis, Ireland introduced a detailed medium-term expenditure framework for central government which appears to have improved multi-year expenditure discipline. Since 2002, Ireland’s Stability Program Update has provided three-year forecasts of aggregate general government expenditure and revenue broken down by economic category. Following a Comprehensive Review of Expenditure (CRE) in 2011, the government has also set out net expenditure ceilings for each department or “Vote” on a three-year fixed basis covering 2012, 2013, and 2014. The 2013 Expenditure Report provided a detailed reconciliation of changes to those expenditure ceilings since the CRE, separately identifying the impact of macroeconomic, policy changes, and technical adjustments. As these ceilings were last set in 2011, they currently only extend two years ahead to 2014. However, a second expenditure review is planned for mid-2013 which will set the ceilings for each department for the period 2015–16.

2.2. Timeliness of Budget Submission and Approval

2.2.1. Fiscal strategy report (Advanced)

38. The government produces a mid-year fiscal report, in the form of the April Stability Program Update (SPU) that sets out the medium-term economic and fiscal parameters for the upcoming budget. Previously, the Medium-Term Fiscal Strategy (MTFS) document, published in October/November provided an update on fiscal developments over the course of the budget year, updated medium-term fiscal and economic forecasts, and presented the revised fiscal targets. The changes in the European semester require the SPU document (which effectively duplicates the MTFS) to be published in April to set the scene for the budget, rather than in January following the budget. Beginning in 2013, the government will only publish the SPU document, rather than duplicating the process in April and November as it did in 2012. In addition to the SPU, the government publishes an updated fiscal forecast in the White Paper on Receipts and Expenditure, which is released in the week prior to the budget, and provides an updated set of fiscal forecasts for the upcoming budget year on a no-policy-change basis, providing a benchmark against which all policy changes announced in the budget can be measured.

2.2.2. Budget submission (Basic)

39. Ireland’s expenditure estimates are submitted to Parliament in early/mid-December, less than a month before the beginning of the financial year, and the Finance Bill, which legislates the tax changes, is not submitted until February. This gives legislators limited opportunity to consider the budget before the start of the financial year to which it refers. Recognizing this, and in line with new requirements under the new EU Six Pack and Two Pack of economic governance regulations, the government plans to bring forward the date of submission of the 2014 Budget to mid-October, which would be sufficient to bring Irish into line with good practice under the Fiscal Transparency Code.

2.2.3. Budget approval (Not met)

40. Due in part to their late submission, Ireland’s annual expenditure Estimates and Finance Bill are not approved by Parliament until well into the financial year. This is possible because departments have standing authority under the Central Fund (Permanent Provisions) Act, 1965, to spend up to four-fifths of the level authorized for the previous year and because urgent taxation changes can be introduced by way of resolution that has statutory effect for a period of up to four months. The budget approval process is protracted and follows three main stages:

  • The first stage occurs in mid-December, when the departmental expenditure Estimates are submitted to the Parliament. It is not necessary for Parliament to approve the expenditure estimates due to the standing spending authority provided under the Central Fund Act. While this arrangement usually works well, it did cause some difficulty in the wake of the crisis when planned expenditure for some departments was below the four-fifths of authorized spending in the previous year for some departments. The Parliament typically approves the Financial Resolutions on budget day to give temporary effect to any indirect tax changes that need to be implemented immediately, subject to confirmation in the Finance Bill.

  • The second stage begins in February with the presentation of the Revised Estimates Volume and publication of the Finance Bill in which the government makes what are generally minor updates to departmental estimates and provides more detailed breakdown of their expenditure by program and administrative category. Parliament must vote on the Finance Bill within four months of the Budget, while the Revised Estimates are usually voted on by July which, taken together with the Finance Bill and Social Welfare Act provide the legal authority for central government expenditure and any tax changes in the current year.

  • Finally, the Appropriation Bill is submitted and enacted by the Parliament at the end of the budget year (after the submission of the next year’s budget in December), formalizing all expenditures that has taken place and adjusting for any amendments that have been taken over the course of the year.

41. This traditional Westminster approach to budget approval does not meet the basic practice of the Code, and the government is looking at bringing the approval process forward. This will be improved in 2013 and thereafter by the Budget Estimates being submitted in October and by the Revised Estimates Volume being produced and submitted before the beginning of the year to which they refer. This should enable Parliament to approve the estimates either before or shortly after the beginning of the financial year. The approval of the Appropriation Act is still intended to be at the end of the year, as a regularization of the in-year adjustments that are made.

2.3. Policy Orientation of the Budget

2.3.1. Fiscal policy objectives (Good)

42. Ireland’s fiscal objectives are clearly stated and reported against in its budget documentation. Prior to the crisis, the government’s fiscal objectives were (i) to meet their obligations under the EU Stability and Growth Pact by aiming for budget balance; (ii) keep the general government fiscal deficit below the 3 percent of GDP limit; and (iii) keep debt below the 60 percent of GDP limit. In the aftermath of the crisis, the government’s near-term fiscal objectives have been set as part of the EU-IMF program and are target a reduction in the general government deficit from 30.9 percent of GDP in 2010, to 8.6 percent in 2012, to 3 percent of GDP by 2015. In line with European requirements, the 2012 Fiscal Responsibility Law introduced a suite of new fiscal rules, including:

  • a budget balance rule requiring general government budget balance or surplus; or if in exceptional circumstances, as it is now, a convergence of the structural budget deficit towards the medium-term target of 0.5 percent of GDP;

  • a debt rule: when general government debt exceeds 60 percent of GDP, the annual pace of debt reduction must be no less than 1/20th of the distance between the actual debt ratio and the 60 percent of GDP limit;

  • a medium-term objective of structural budget balance target of no-less than -0.5 percent of GDP; and

  • a medium-term expenditure rule, limiting annual growth in general government expenditure to potential GDP growth, as assessed over the past five years, the estimate for the current year, and projections for the next four years.

43. While these rules are precise and time-bound, their number and complexity will require an improvement in the reporting of general government fiscal forecast and outturn in budget documents. The budget documentation should include a section that clearly states each rule, and demonstrates how the budget, as presented on an Exchequer basis, is performing against each of these general government rules, both historically and into the future. In some cases this is already being done, for instance with the fiscal balance rule, where a walk-through from the Exchequer balance to general government balance is provided. However, in other cases, such as the expenditure growth rule, while the budget documentation does give the general government aggregates it does not provide a walk-through from Exchequer payments to the general government expenditure. Appendix 1A and 1D provide examples of such a walk through.

2.3.2. Separation of existing and new policies (Advanced)

44. The budget documentation distinguishes the cost of existing policies and separately identifies the impact of new policies included in the budget. In the 2013 Budget, these measures are estimated to have increased revenues by 0.9 percent of GDP and reduced expenditures by 1.1 percent of GDP. The impacts of new policy measures on revenue and expenditure are compared against no-policy-change estimates from the White Paper on Receipts and Expenditure that is published in the week before the budget. The budget documentation also factors in the second round effect of consolidation measures on economic activity and tax revenues over the forecast period.

45. Individual policy measures are comprehensively described and quantified, though in a number of different documents. Tax policy measures are set out in the Summary of Budget Measures, which describes each measure and provides the yield/cost for both the budget year and a “full year” cost. Since 2012, expenditure measures are shown in the Estimates as changes to each department’s Vote ceiling relative to those set out in the previous year’s estimate for both the budget year and a full year.

2.3.3. Performance information (Good)

46. Each department’s expenditure Estimate includes targets for the outputs to be delivered and retrospective indicators for the outcomes achieved under their Vote, but there is no explicit link to budget allocations within departments. In an appendix to each Departmental Vote, the Revised Estimates includes information on (i) high level policy goals to be pursued by the respective department; (ii) outturn and indicative targets for outputs in numerical terms; and (iii) data on outcome indicators for the last three years. The information on policy-related outputs and impact in the budget documentation has helped to focus the policy debate on department’s policy objectives and track their achievement from year to year. However, these policy objectives and nonfinancial performance indicators are not directly linked to the various expenditure programs within departmental Votes, nor are there targets for expected improvements in outcomes against which to compare subsequent department performance. This makes it difficult to understand the connections between departmental goals, objectives, programs, outputs, outcomes, and performance.

2.3.4. Distributional analysis (Advanced)

47. The Irish budget provides detailed distributional analysis of the financial impact of government policies on citizens. The budget includes an annex describing the impact of the major tax policy changes on household incomes broken down by gross income levels, income sources, and family types, on a pre and post policy change basis. This annex provides a range of illustrative cases of the impact of tax changes on different taxpayer profiles, such as a single person contributing the full rate to PRSI, and a married couple with a single income and two children. There is also some information provided about the distribution of tax payers across various groupings, such as the proportion of people exempt from paying PRSI, paying it at the standard rate, and paying at the higher rate.

48. The 2013 budget also draws on external research to demonstrate the progressivity of the cumulative impact of consolidation policies. This research is presented in the Distributional Impacts of Recent Budgets and Progressivity Issues annex, drawing on research prepared by the OECD, ESRI and the European Commission (EC), and demonstrates that high income earners have borne the greatest share of the fiscal adjustment. It also compares the progressivity of the Irish consolidation to six other crisis hit countries, as measured by changes in disposable income levels by income decile due to policy adjustments (Figure 2.6).

Figure 2.6.
Figure 2.6.

Example of Distributional Analysis: Percent Change in Disposable Income by Decile Group, 2008–11

Citation: IMF Staff Country Reports 2013, 209; 10.5089/9781484303924.002.A001

Source: European Commission.

2.3.5. Fiscal sustainability analysis (Not met)

49. Ireland’s published fiscal forecasts cover a relatively short time horizon and provide limited information about the long-term sustainability of fiscal policy. The 2013 budget documentation only provided forecasts of the main fiscal aggregates to 2015. The 2012 SPU document provides a summary of the EC’s 2009 Aging Report’s long-term demographic and spending projections for Ireland out to 2060 which were jointly developed between the EC and Member States. The government has not published a set of long-term projections since the 2007 National Pensions Framework. In addition, the 2013 Expenditure Report includes an analytical chapter on the impact of alternative demographic scenarios on education expenditure between 2013 and 2030. However, in both cases, the analysis is limited to the expenditure side of the budget, and does not assess the implications of these trends for government revenue, balance, or debt. While the DoF has a longer-term forecasting model which it uses to provide inputs into the EC’s fiscal sustainability reports, it does not publish its own comprehensive long-term fiscal projections.

50. The lack of comprehensive analysis of Ireland’s long-term fiscal stability is of particular concern given Ireland’s relatively high levels of government debt and growing demographic pressures. Ireland faces a long period of tight fiscal policy in order to bring public debt down from the current level of 118 percent of GDP to the long-term objective of 60 percent of GDP. Demonstrating the compatibility of Ireland’s current fiscal policy settings with this objective requires a time horizon of 10 years or more. Ireland’s high indebtedness also increases the sensitivity of the main fiscal aggregates to variations in interest and GDP growth rates, increasing the importance of undertaking the kind of scenario-based debt sustainability analysis shown in Figure 2.7. Looking beyond the immediate consolidation, like most advanced economies, Ireland is also facing considerable demographic pressures, which the EC estimates will require an additional 7.4 percent of GDP of expenditure based on existing policies by 2050.

Figure 2.7.
Figure 2.7.

Example of Debt Sustainability Analysis for Ireland

Citation: IMF Staff Country Reports 2013, 209; 10.5089/9781484303924.002.A001

Source: IMF

2.4. Credibility of Forecasts and Budgets

2.4.1. Independent evaluation (Advanced)

51. Ireland’s macroeconomic and fiscal forecasts are evaluated by the independent Irish Fiscal Advisory Council (IFAC). The IFAC was established in 2011 to independently assess and publicly comment on whether the government is meeting its fiscal targets and objectives. It assesses the credibility of the government’s macroeconomic and fiscal projections, as well as the appropriateness of its overall fiscal stance. The Council comprises five economists appointed on a part-time basis and a full-time secretariat of three. The members are appointed by the Minister for Finance based on their experience and competence in domestic and international macroeconomic and fiscal matters. IFAC submits its assessment reports twice a year to the Minister for Finance and within ten days of that releases them publicly. If the government does not accept the Council’s assessment in relation to the existence or otherwise of exceptional circumstances, non-activation of the correction mechanism in response to significant deviation, or on the progress of a correction against a correction plan, the Minister for Finance must lay a statement before Parliament outlining the government’s reasons for not accepting it.

2.4.2. Supplementary budget (Advanced)

52. Any increase in total expenditure or movements between Votes requires approval by Parliament. This approval takes the form of a Supplementary Estimate, which is required whenever (i) additional money is needed for an existing service; (ii) additional funds are needed to cover a shortfall in appropriations in aid (non-tax revenue collected by departments); (iii) to use surplus appropriations in aid to finance additional expenditure; (iv) to transfer appropriation from one departmental Vote to another; or (v) to transfer funds between services within a Vote, when this cannot be done through administrative virements.

53. In practice, the overall expenditure totals set out in the original budget presented to Parliament are respected and reallocations of resources between departmental Votes are limited. As shown in Figure 2.8, Ireland has underspent against Exchequer budget totals in every year since 2004, with an average underspend of 2.3 percent of expenditure. The overall movement of resources between Votes during the budget year averages 0.5 percent of total expenditure, after accounting for the overall underspend.

Figure 2.8.
Figure 2.8.

Ireland: Budgeted Expenditure versus Outturn

(Percent of GDP)

Citation: IMF Staff Country Reports 2013, 209; 10.5089/9781484303924.002.A001

Source: Department of Finance, Ireland.

2.4.3. Forecast reconciliation (Not met)

54. Ireland’s medium-term fiscal forecasts are subject to large variations which are not comprehensively reconciled and explained. The 2013 Budget revised down its tax revenue forecast for 2013 by €835 million (0.5 percent of GDP) and revised up its expenditure forecasts by €2.2 billion (1.4 percent of GDP) compared with the April 2012 SPU—all due to changes in macroeconomic parameters. Such variations then required 2 percent of GDP in policy adjustments to remain within the government’s deficit targets. However, this overall picture was not transparently presented and explained in a single publication.

55. Reconciliations are provided for changes in multi-year expenditure allocations between budgets, but not for changes in medium-term projections of revenue or other fiscal aggregates. The 2013 Expenditure Report provided, for the first time, a comparison of changes to three-year departmental Vote ceilings since they were announced in 2011. Changes in those expenditure ceilings are broken down into those resulting from macroeconomic factors, policy changes, and technical adjustments. However, the same reconciliation is not provided for changes to broader general government expenditure. Revenue forecasts are only compared to the forecasts prepared in the White Paper on Receipts and Expenditure, which is released a week prior to the budget to provide a baseline against which policy changes can be assessed against. This allows the impact of tax policy measures to be understood in the budget year, but not how this differs from earlier forecasts.

56. Ireland’s new fiscal rules will require the impact of policy measures on general government fiscal aggregates to be more clearly differentiated from parameter variations in medium-term forecasts. Providing such reconciliation will also enable the IFAC to assess the appropriateness of the government’s overall policy response to changing macroeconomic prospects. More transparent reconciliation of the reasons behind changes to expenditure and revenue forecasts will also be critical to demonstrating the government’s compliance with the expenditure benchmark, which allows discretionary expenditure increases only where they are offset by discretionary tax increases over the medium term.

2.5. Conclusions

57. In summary, the Irish government’s fiscal forecasting and budgeting meet either good or advanced practices in most areas, and where practice falls below standard, there are reforms underway to improve disclosure.Table 2.2 summarizes the quality of Irish fiscal forecasting and budgeting practices relative to the standards set by the Fiscal Transparency Code and the relative importance in each area. This assessment highlights a number of areas where forecasting and budgeting can be improved, including:

  • the unity and coverage of the budget documentation and legislation, which only cover the Exchequer, leaving out €6.8 billion (4.3 percent of GDP) of extra-budgetary activity within the central government;

  • the timing of budget submission and approval, in which Parliament receives the budget only a few weeks before the beginning of the budget year and approves it halfway into the budget year;

  • the relatively short fiscal forecasting horizon and lack of comprehensive fiscal sustainability analysis; and

  • the lack of a transparent reconciliation of changes to the main fiscal aggregates between successive fiscal forecasts which makes it difficult to assess the impact of macroeconomic shocks, policy changes, and technical changes on fiscal prospects.

Table 2.2.

Ireland: Summary Assessment of Fiscal Forecasting and Budgeting

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Chapter IV provides a series of recommendations for addressing these gaps in fiscal forecasting and budgeting, both through general improvements in the coverage of fiscal reporting, bringing forward the budget timetable, as well as through improvements in the government’s fiscal forecasts and related documentation.

III. Fiscal Risk Analysis and Management

3.0. Introduction

58. Fiscal risks cause fiscal outcomes to differ from forecasts. They include uncertainty about the evolution of fiscally important macroeconomic variables such as growth, inflation, interest rates, and unemployment. They can also arise from specific sources such as calls on government guarantees, tax disputes and other litigation, and changes in the values of the government’s assets and liabilities. A government’s ability to cope with fiscal risk depends on the quality of its information about risks, its powers to limit its exposure to those risks that can be mitigated, and its capacity to absorb the fiscal consequences of those risks than cannot be mitigated.

59. By many measures, fiscal risks are relatively high in Ireland. Even before the crisis, the government’s revenue was volatile by the standard of advanced countries, making fiscal forecasting and management challenging. The rapid rise in general government debt from 25 percent of GDP in 2007 to 118 percent in 2012 leaves Ireland with relatively little room to accommodate further fiscal shocks. At the same time, households, firms, and financial institutions are themselves heavily indebted, increasing the risk that the government will come under further pressure to support other sectors of the economy (Table 3.1).

Table 3.1.

Indebtedness and Leverage in Selected Advanced Economies, 2012

(Percent of GDP unless noted)

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Source: IMF, Global Financial Stability Report, October 2012 (Table 2.1) available at, which provides fuller notes on data and original sources.Note: Cells shaded red, yellow, and green indicate, respectively, values in the riskiest quartile, second-riskiest quartile, and least-risky two quartiles of a larger sample. For Ireland, gross debt of financial institutions and gross external liabilities include the liabilities of large internationally oriented firms that are less important for financial stability than domestically oriented firms (see CBI, Macro-Financial Review, 2012: II, Box 2).

60. As in the area of fiscal reporting, the government publishes much information on fiscal risks, but its value is diminished by being scattered across many documents published by many agencies. Table 3.2 lists documents that include information on fiscal risks that were reviewed as part of the assessment.10 As well as revealing that the reporting of risk is fragmented, the table shows that much of the information is reported not by the ministries responsible for fiscal management—the Department of Finance and the Department of Public Expenditure and Reform—but by other entities such as the Comptroller and Auditor-General, the Irish Fiscal Advisory Council, and the Central Bank.

Table 3.2.

Ireland: Selected Reports Related to Fiscal Risk

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61. This chapter assesses the adequacy of Ireland’s fiscal risk analysis and management practices relative to the IMF Fiscal Transparency Code in three areas:

  1. general arrangements for disclosure and analysis of macroeconomic and specific fiscal risks;

  2. risks emanating from specific sources such as government assets and liabilities, guarantees, other financial-sector exposures, long-term contracts, and financial derivatives; and

  3. coordination of fiscal decision-making between central government, local governments, and public corporations.

3.1. Fiscal Risk Analysis

3.1.1. Macroeconomic risks (Advanced)

62. The volatile macroeconomy has been a major source of fiscal risk in Ireland. Even before the crisis, GDP was more volatile in Ireland—and thus, other things equal, harder to forecast—than in other countries of the Euro Area (Figure 3.1.a). The volatility of GDP fed directly into the volatility of the government’s revenue (Figure 3.1.b), making fiscal forecasting also difficult. Fast-growing economies are often volatile, but even controlling for growth rates, Ireland’s GDP and government revenue were among the most volatile in the Euro Area (Figures 3.1.c and d).

Figure 3.1.
Figure 3.1.

Indicators of Macro-fiscal Risk in the Euro Area, 1999–2008

Citation: IMF Staff Country Reports 2013, 209; 10.5089/9781484303924.002.A001

Source: IMF, World Economic Outlook database, October 2012.Notes: The coefficient of the growth of nominal GDP (for example) is its standard deviation divided by its mean. Government is general government. Malta is excluded from data on revenue because of incomplete data.

63. Three recent reports provide a comprehensive analysis of macroeconomic risks that, considered jointly, meet the standard of advanced practice. These are:

  • the DoF’s November 2012 Medium-Term Fiscal Statement which estimates the sensitivity of forecasts of the deficit of general government to changes in world GDP growth and the domestic savings rate;

  • the DoF’s April 2012 Stability Program Update which projects the deficit of general government under four alternative scenarios (relating to interest rates, world GDP growth, oil prices, and the domestic savings rate) in which growth differs from forecast by 1 percent; and

  • the Irish Fiscal Advisory Council’s September 2012 Fiscal Assessment Report which, by assuming that the errors in forecasts of nominal GDP will be as large in the future as they have been in the past, presented 80 percent confidence bands for forecasts of debt and deficit of general government until 2015, holding current policy constant (Figure 3.2).11

Figure 3.2.
Figure 3.2.

Ireland: IFAC’s Estimate of Uncertainty Surrounding Future Deficits

Citation: IMF Staff Country Reports 2013, 209; 10.5089/9781484303924.002.A001

Source: IFAC, Fiscal Assessment Report, September 2012, Figure 3.7a.Notes: the deficit is for general government. The fan chart shows 80 percent of the probability distribution of outcomes, each band representing 10 percent of the distribution.

3.1.2. Specific fiscal risks (Basic)

64. In addition to macroeconomic volatility, the government is exposed to a wide array of fiscal risks arising from sources not easily incorporated in macroeconomic analysis. These “specific” (or “discrete”) fiscal risks include:

  • factors other than those incorporated in macroeconomic analysis that may cause revenue to be higher or lower than forecast. An example in Ireland is the effect of the pharmaceutical “patent cliff” on tax revenue from pharmaceutical firms whose patents are due to expire, which was specifically mentioned in the Economic and Fiscal Outlook and which the government is working to quantify;

  • contingent liabilities, including guarantees, deposit insurance, callable capital in international organizations, and law suits (Table 3.3). In some cases, a government’s exposure can be quantified, as for example in the case of the guarantees shown in the Finance Accounts. In others, the government’s commitment may be open-ended and hard to quantify, as in the case of the Insurance Compensation Scheme. In certain disputes, it may be imprudent to publish an estimate of the amount of a contingent liability because it would affect the government’s negotiating position. In addition to these explicit contingent liabilities, there may also be “implicit” contingent liabilities, such as the pressure to stand behind the liabilities of systemically important banks in a financial crisis, even if the liabilities are not guaranteed, or to compensate the victims of a natural disaster, even if the government has no legal obligation to do so;

  • risks related to assets and liabilities, including those not currently reported on a balance sheet. Such risks include refinancing risks and the effect of changes in interest rates, exchange rates, and other variables on the values of the government’s various assets and liabilities; and

  • possible technical changes in the measurement of the debt or deficit that, while not directly changing underlying public finances can affect whether fiscal outcomes are in line with forecasts. An example is the recent reclassification of Irish Rail and RTE into general government and the risk of the reclassification of other public corporations if they fail to operate on a commercial basis.

Table 3.3.

Ireland: Selected Contingent Liabilities of General Government, 2011/12

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Source: See table.Note: The estimates of contingent liabilities related to the European Investment Bank and to other international organizations are based on the named governments’ estimates of their own contingent liabilities expressed as a percentage of GDP. The estimates assume that the Irish government’s contingent liabilities are the same as a percentage of GDP.

65. The government does not produce a report on specific fiscal risks, though information on various risks is available in several different reports (Table 3.2). For example, the 2011 report of the Comptroller and Auditor-General, though it is not focused on risk, describes the government’s guarantees to the financial sector and its commitments in public-private partnerships. Individual departmental Appropriation Accounts also disclose contingent liabilities associated with particular Votes. For some contingent liabilities, the information in the Accounts is minimal (“the Department is involved in a number of claims involving legal proceedings which may generate liabilities, depending on the outcome of the litigation”). For others, the discussion includes estimates of future spending (e.g., in relation to compensation for child abuse, “additional costs of up to some €150 million may arise”).

66. However, the value of the information is reduced by its fragmentation. Understanding the universe of fiscal risks in Ireland requires reading more than a dozen reports. To understand only the contingent liabilities shown in Table 3.3, for example, it is necessary to look at the Finance Accounts for government guarantees; the C&AG’s report for information on deposit insurance, the insurance-compensation scheme, and revenue guarantees for tolls roads; various other sources for information on callable capital in international organizations; and the Appropriation Accounts for information on court cases and title insurance. Even within a single document, the information may not be easy to find. For example, because the Appropriation Accounts are prepared for each vote individually but not consolidated, the information on contingent liabilities in the Accounts of 2011 is not summarized in a single table or section but appears on pages 233, 318, 345, 401, 424, 452, 468, 548, and 569.

3.1.3. Comparability of fiscal reports (Basic)

67. Budgets are prepared on the same basis as Exchequer statements, and differences between the Exchequer balance and national debt, on the one hand, and the deficit and debt of general government, on the other, are explained. As explained in Chapter 1, however, the ESA95 fiscal statistics used to measure compliance with EU fiscal rules are prepared on a basis that is very different from Ireland’s budgetary accounting. Moreover, although differences between the two main sets of indicators of the deficit and debt are reconciled, differences in the two measures of spending and revenue are not. Table 3.4 presents such a reconciliation.

Table 3.4.

Ireland: Reconciling Revenue and Expenditure between Exchequer and the General Government, 2011

(Million Euros)

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Source: DoF, staff estimates.

3.2. Management of Fiscal Risk

3.2.1. Contingency reserves (Basic)

68. Ireland’s budget includes small amounts for contingencies. As Figure 2.7 shows, the budget has been underspent in aggregate each year since 2004. To allow for unplanned spending on specific unbudgeted items, the Expenditure Report 2013 includes a line for “contingency expenditure” of €50 and €70 million in 2013 and 2014 under current spending (about 0.1 percent of total spending) and an “unallocated reserve” under capital spending of €67 and €134 billion in 2015 and 2016 (though nothing for 2013 and 2014). In addition, there is an extra-budgetary contingency fund that was not used in 2011. It contained €1.2 million at the end of 2011. The DPER’s Public Financial Procedures manual sets out criteria for the use and reporting of the contingency fund (section C1), but there are no published criteria for the use and reporting of the contingency lines in the budget.

3.2.2. Assets and liabilities (Basic)

69. The government’s holdings of financial assets and, especially, liabilities have increased rapidly in the last decade. As shown in Figure 3.3, on the eve of the crisis at the end of 2007, the government’s liabilities amounted to €60 billion (32 percent of GDP), against which it held €58 billion in financial assets (31 percent of GDP). By the end of the third quarter of 2012, the general government’s financial liabilities had more than tripled to €212 billion (131 percent of GDP)12 while its assets had risen to €78.4 billion (48 percent of GDP). Among the riskier holdings of financial assets are equities of some €23 billion (14 percent of GDP). As the size of the government’s financial balance sheet has grown, large differences have emerged in some years between the deficit and the total change in the government’s financial net worth, which depends not only on the transactions that affect the deficit but also on changes in the market values of the government’s assets and liabilities. In 2010, for example, when the deficit was 31 percent of GDP, the decline in financial net worth was 22 percent, while in 2011 when the deficit was 13 percent, the decline in financial net worth was 18 percent.13 As stressed in Chapter I, the government also has various assets and liabilities not included in the financial balance sheet of Figure 3.3 (see Table 3.5).

Figure 3.3.
Figure 3.3.

Ireland: General Government Financial Assets and Liabilities, 2002–12

(Billion Euros)

Citation: IMF Staff Country Reports 2013, 209; 10.5089/9781484303924.002.A001

Source: CBI, Quarterly Financial Accounts.
Table 3.5.

Ireland: Selected Other Assets and Liabilities, 2011

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Sources: CSO; C&AG; NTMA Appropriation Accounts; IMF staff estimates.

70. Government borrowing is generally controlled by the Minister for Finance. As a rule, only the Minister for Finance may borrow (Public Financial Procedures §B3), though the government has delegated primary responsibility for borrowing to the NTMA. Similarly, government agencies need approval to borrow (PFP §C3) and “lease-purchase” arrangements are included in the scope of the restrictions (PFP §D2). Local governments must get approval from the appropriate minister, following a review by the Department of Environment, Community and Local Government of the proposal from a financial viewpoint. Public bodies must also get approval to enter into public-private partnerships, which are arrangements that typically involve commitments similar to borrowing.

71. The NTMA publishes information on risks associated with much of the government’s liabilities and describes a strategy for management of financial assets associated with the NPRF. The NTMA’s Annual Report for 2011 report provides information on most of the central government’s conventional debt. The report covers 79 percent of the liabilities of general government, and while the government’s €28 billion in promissory notes is mentioned, it is excluded from the financial statements. The report also shows the currency composition and maturity profile of the national debt (a measure of net debt), two key indicators of risk, and it discusses refinancing risk in some detail. The report provides summary information on the portfolio of the NPRF, which is managed by the NTMA, and which was worth €13.4 billion at the end of 2011 (20 percent of the financial assets of general government). A separate annual report for the NPRF discusses the management of risks in this portfolio of assets. Similarly, NAMA’s assets and liabilities are also reported. However, there is no report that shows the consolidated assets and liabilities under NTMA’s management, analyzes the risks to this portfolio, and describes the strategy for their management.

3.2.3. Guarantees (Basic)

72. Government guarantees are an important source of fiscal risk in Ireland, though the government’s exposure has fallen sharply since 2009. As they are defined in the Finance Accounts, they have fallen from roughly 200 percent of GDP to 73 percent at the end of 2011 (Figure 3.4). Moreover, roughly half the liabilities the government had guaranteed at end-2011 were liabilities of public corporations and thus cannot be added to the data on the liabilities of the public sector presented in Chapter 1. Nevertheless, guarantees remain large in absolute terms and relative to other EU countries (Figure 3.5).

Figure 3.4.
Figure 3.4.

Ireland: Guaranteed Liabilities, 2008–12

(Percent of GDP)

Citation: IMF Staff Country Reports 2013, 209; 10.5089/9781484303924.002.A001

Source: EDP Submission for 2008–2011.Note: guarantees of public corporations are government guarantees of liabilities issued by corporations (including banks) that are classified in the public sector but not in general government, as reported in the EDP Submission. These guarantees are therefore contingent liabilities of general government but not of the public sector. Other guarantees include some guarantees of the liabilities of general government.
Figure 3.5.
Figure 3.5.

Government Guarantees Related to Financial Crisis, Euro Area, 2011

(Percent of GDP)

Citation: IMF Staff Country Reports 2013, 209; 10.5089/9781484303924.002.A001

Source: Eurostat, Supplementary Tables for the Financial Crisis, for guarantees; IMF, World Economic Outlook, October 2012, for GDP.

73. Basic information on government guarantees is disclosed, though issuance generally remains at the discretion of the Minister for Finance. The 2011 Finance Accounts reported the guarantees shown in Table 3.6. The guarantees, which amount to €147 billion (92 percent of GDP), were given to a combination of private corporations, public corporations, and general government entities. At the same time, the figures disclosed in the Finance Accounts do not include various commitments that are economically similar to guarantees, even if they have a different legal form. These effective guarantees include the callable capital in international financial institutions, the deposit-insurance scheme covering deposits of up to €100,000, and the insurance-compensation scheme shown in Table 3.3. While all guarantees have a statutory basis, in some cases there are no prescribed limits on the total amounts guaranteed.

Table 3.6.

Ireland: Government Guarantees, end-2011

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Sources: Finance Accounts 2011; EDP Submission to Eurostat, October 2012 (not public) for guarantees of liabilities of public corporations; IMF, World Economic Outlook database, October 2012 for GDP.

3.2.4. Financial sector exposure (Basic)

74. As the crisis has underscored, the fiscal risks emanating from the financial sector are not limited to those created by explicit government guarantees. A broader measure of the exposure created by the financial sector is given by the sector’s total liabilities, guaranteed and unguaranteed. Table 3.1 shows that this measure is extremely high in Ireland compared with other high-income countries, though much of the liabilities are associated with foreign banks that the government is unlikely to come under pressure to stand behind.14 Table 3.1 also shows the Irish banks are relatively dependent on the Irish government’s creditworthiness, but that their equity as a percentage of their assets, measured at book values, is relatively high. Table 3.7 provides further indicators of the stability of the banking sector in Ireland compared with other European countries and shows a mixed picture. The Tier 1 capital ratio is relatively good, for example, but the ratio of nonperforming loans (NPL) to total loans is high. The CBI’s Macro-Financial Review for the second half of 2012 described the situation of the Irish banking sector as remaining “fragile.”

Table 3.7.

Indicators of Banking Financial Stability in Europe, 2012

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Source: IMF, Global Financial Stability Report, October 2012 (Table 2.2) available at, which provides fuller notes on data and original sources. Note: Cells shaded red, yellow, and green indicate, respectively, values in the riskiest quartile, second-riskiest quartile, and least-risky two quartiles of a larger sample.

75. Public reports provide basic information on financial-sector risks and the government’s explicit exposure to them. The 2011 report of the C&AG provides a clear and detailed discussion of the government’s interventions in the financial sector. Although it does not attempt to assess the risks faced by the government, it describes the government’s guarantees and other factors relevant to an assessment of the risk. The Central Bank’s Macro-Financial Review does not discuss fiscal questions, but it analyzes the risks of financial instability, including those emanating from the financial sector. However, the government does not provide its own assessment of potential fiscal risks created by the financial sector.

3.2.5. Long-term contracts (Basic)

76. Public-private partnerships are a modest source of fiscal risk in Ireland. The estimated present value of the central government’s recorded financial commitments under PPPs given available data was about 2 percent of GDP in 2011 (Figure 3.6).15 Not included in that estimate, however, are any projected payments in PPPs undertaken by local governments and projected payments by the central government to two toll-road companies that benefit from traffic guarantees.16 The government also has certain lease and other commitments. Although PPP commitments in Ireland are not trivial, they are smaller than in Portugal and the United Kingdom, which have two of the largest PPP programs in Europe (Figure 3.6).

Figure 3.6.
Figure 3.6.

Estimated Size of PPPs in Ireland, Portugal, and UK

(Percent of GDP)

Citation: IMF Staff Country Reports 2013, 209; 10.5089/9781484303924.002.A001

Sources: 2011 C&AG Report for nominal commitments in Ireland; IMF Staff estimates for present value of payments and liability that would be recognized on the balance sheet under IPSAS, IFRS, or similar standards in relation to government-funded PPP (the available information does not allow for a reliable estimate). Portuguese budget report (Orçamento do Estado para 2012: Relatório) for data underlying estimates of commitments and their present values for Portugal; Whole of Government accounts, 2011, for liability on balance sheet and present value of commitments in the United Kingdom, and H.M. Treasury website for commitments (

77. The government discloses basic information on its commitments in PPPs. The C&AG’s 2011 report included a substantial section on public-private partnerships, which provided