The Fiscal Advisory Council has repeated its warnings about basing permanent increases in Government spending on volatile sources of revenue, notably Corporation Tax.

The warning follows yesterday's Exchequer returns for November, which showed an inflow of almost half a billion more Corporation Tax than the Government was expecting. 

This followed on from an additional €1 billion in unanticipated Corporation Tax in October.

Appearing before the Budget Control Committee of the Oireachtas, IFAC Chair Seamus Coffey said that "while it is good to be collecting (a likely) €10 billion this year, the the Fiscal Monitor report didn't explain where the money came from. 

"We have limited knowledge of why it happened, so it could go back down again. The danger is to have permanent spending increases on what could be transitory tax revenues."

We need your consent to load this rte-player contentWe use rte-player to manage extra content that can set cookies on your device and collect data about your activity. Please review their details and accept them to load the content.Manage Preferences

Separately from his role at the Fiscal Council, Mr Coffey has written a report for the Government about the sudden influx of Corporation Tax revenues, using data from 2016. 

Asked by Fianna Fáil finance spokesman Michael McGrath if he was still confident in his conclusion that this revenue was stable out as far as 2020, Mr Coffey said the earlier view had not changed, and he was satisfied that the tax was solid out to 2020. 

But he added that "2020 is not that far away, so I'm not exactly sticking my neck out here".

Mr Coffey said the volume of tax collected has increased, and so has the risk associated with that revenue. 

"The risks get higher as the volume gets higher," he stated. 

He noted that the achievement of a budget surplus had been pushed back by two years, even as the economy was getting stronger and more revenue was flowing into the Government coffers. 

"The reason for that delay is policy," he said.

He said that in a cyclical upswing in the economy, it is normal to expect more revenue to be collected, including from increased profits in the corporate sector. 

But he said "what we are seeing is way beyond that". 

He said the additional money was not coming from the domestic Irish economy but from outside, via the international trade flows of US companies. 

This money was being taxed and the revenues spent because of policy decisions. It was effectively a stimulus to the economy, he added.

IFAC council member Michael Tutty added that US tax policy can have a very big impact on Corporation Tax receipts in Ireland. 

"When you have a big increase you weren't expecting and can't explain, you should not be basing long term spending decisions on having that revenue forever. We would be dubious about that revenue staying with us for the long term".

IFAC's chief economist Eddie Casey said the council had looked at ten different models for forecasting Corporate Tax, but found none of them were particularly good at projecting revenues. 

"It is the most volatile tax heading, it has the most forecast errors, and it is highly concentrated, so information like a big company making a product based on a patent that is about to run out is beyond our control," he said.

Addressing questions from members about the risks of the economy overheating if housebuilding is ramped up, - and possible actions to damp down the economy - IFAC Chair Seamus Coffey said "we don't want to damp down housebuilding. We do need to increase housebuilding, but we need to make (fiscal) space to do it."

He said that with low unemployment, and a lot of skilled building workers having left the country during the recession, there is now a serious shortage of skilled workers to increase housing output.

He said housing output was expected to be around 18,000 units this year, but this was only about half of the "equilibrium level" - the number needed to meet demand.

And to catch up with the under supply over the past decade it would probably take an increase in output to around 50,000 units per year for a period - a number which was by definition "unsustainable", and would fall back eventually.

But such an expansion would require careful management to avoid creating wider economic problems. "We may have to take some money out, take some heat out of the economy to make the space for necessary housebuilding," he added.