Word version of the report

Section 1:        Context

Section 2:        Impact on the Estimates and Budget - Quality and Procedural Considerations

Annex:             Alternative Estimates and Budget Decision Making Timetables

Section 3:        Implementation Issues

                        (a) Taxation Aspects

                        (b) PRSI Aspects

                        (c) Social Welfare Aspects

                        (d) Legislative Aspects

Section 4:        The Changeover to the Euro

Section 5:        Assessment of Alternative Dates and Conclusions

Annex:             Tabular Comparison of Impact of Alternative Budget Dates

Appendix 1:    Extract from Press Statement of 20 July 2000 announcing Alignment of Tax and Calendar Years

1.1: In July 1998, an Interdepartmental Working Group made up of representatives from the Departments of Finance, Social Community and Family Affairs and the Revenue Commissioners completed a report on the Alignment of the Income Tax Year with the Calendar Year from 1 January 2000. The Group, having considered the main issues involved, including the administration and systems aspects, recommended that the changeover should not proceed before 1 January 2001 for a number of reasons. The Minister deferred consideration of the issue in 1999 in view of the fundamental changes being made to the tax system to accommodate the introduction of income tax credits.

1.2: On 12 July 2000, the Government authorised the Minister to proceed with the necessary preparations for the alignment of the Income Tax/PRSI year with the calendar year from 1 January 2002. In that context, it was also agreed that social welfare increases, excluding Child Benefit, would apply from 1 January and that there should be further consultation between the Department of Finance and the Department of Social, Community and Family Affairs on the date of the Budget (which the Memorandum for Government envisaged would be in early November) and other procedures to resolve transitional difficulties.

1.3: On 20 July 2000, the Minister issued a press statement (extract at appendix 1) which announced the alignment with effect from 1 January 2002 and indicated that, from that point, Budget day tax changes and social welfare weekly rate improvements would be brought forward to 1 January and that combining the change with the euro changeover would allow necessary changes to IT systems to be to be made in one go. The statement also said that, in order to facilitate the change, it would be necessary to have an earlier Budget day than early December as at present.

1.4: The Minister for Social, Community and Family Affairs brought a Memorandum to Government on 16 November 2000 on the payment of social welfare increases from 1 January 2002 where it was decided that Ministers would consult further.

1.5: In his Budget Statement of 6 December 2000, the Minister confirmed that the next tax year would be a short year running from 6 April to 31 December 2001 to accommodate the introduction of the calendar based tax year from 1 January 2002; he also said that, from 2002, the weekly social welfare increases would apply from 1 January.

1.6: Arising from subsequent discussions between the Taoiseach and the Minister and officials of both Departments regarding the date of future Budgets, the Taoiseach requested that a timetable be drawn up for the Budget, Estimates and the introduction of the euro. At a meeting of the Assistant Secretary Group on 15 December 2000, it was agreed that a Working Group be established in that regard to draw up a paper by 12 January 2001 for consideration by the Management Advisory Committee in mid-January.

1.7: The membership of the Group was:

Joe Mooney (Chair) - Public Expenditure Division

Áine Stapleton - Public Expenditure Division

Dermot Mulligan - Budget and Economic Division

Vincent Palmer - Budget and Economic Division

Philip Hamell - Euro Changeover Board of Ireland

Mary Nash (BED) acted as Secretary to the Group, while Tom Murphy (PED) and Colm Sweeney (BED) also participated in the Group's deliberations.

1.8: The Working Group agreed on the following terms of reference:

- Identify possible alternative Budget dates and assess the implications of opting for those dates.

- Make a recommendation to Management and the Minister on the date on which the 2002 Budget and beyond should be presented to Dáil Eireann.

- Draw up an Estimates and Budget timetable

The Group also agreed that it would consult with the Revenue Commissioners and the Department of Social, Community and Family Affairs and would take into account the issues raised by each organisation in relation to the alternative Budget dates. Representatives of both organisations made presentations to the Group on 4 January 2001.

1.9: From the outset, the Group decided to give particular consideration to the dates of 5 December 2001 and 24 October 2001 for Budget 2002, on the basis that the former date represented a continuation of the status quo, while Revenue and the Department of Social, Community and Family Affairs say that the latter is the latest point at which implementation of tax and most social welfare changes announced in the Budget could be achieved on 1 January 2002. While consideration was also given to an interim position of a November date, it quickly emerged that, notwithstanding the benefits of a somewhat firmer financial framework than would apply in relation to an October date, it would not be as sound in that regard as a December Budget; moreover, it would offer few operational advantages over a December date, at least for 2002.

2.1: Fiscal policy is the most important economic policy instrument of Government, and, indeed, has added significance since Ireland's entry to EMU. The Minister's Financial Statement sets out annually the Government's overall fiscal policy i.e. its budgetary targets (both revenue and expenditure) together with the projected Budget Balance for the coming year. In addition, the Budget contains a multi-annual presentation of the major revenue and expenditure figures for the following two years on a no-policy-change basis. The Budget is also the principal forum for outlining the Government's taxation and social welfare priorities, together with other selected spending measures considered appropriate for announcement as part of the Budget day package.

2.2: In assessing the impact of the timing of the Budget day on the budgetary process itself, the Group considered two key aspects:

- the consequences for the Government's financial management system, i.e. the estimates and budgetary process; and

- the capacity of Departments to produce the Estimates over a shorter time period.

The respective timetables in relation to the various stages of the Estimates/Budget which would need to be observed for the two Budget dates considered by the Group are set out in the annex to this section.

2.3: Advancing the Budget date by six weeks would inevitably impact on the robustness of the information available to Government in formulating its budgetary policy. In settling its economic strategy and budget priorities, the Government needs to have timely and accurate information on developments in the wider economic environment. The closer the decision making process to the end of the year, the more accurate will be the available information on emerging economic trends and projected tax receipts for the coming year. This is particularly true in the case of inflation, for example.

2.4: A particular risk on the tax forecasting side associated with an early Budget concerns the possible significant overstatement of tax receipts for the Budget year in a situation of economic downturn. In recent years, the dynamic performance of the economy has produced the opposite effect.

2.5: Particular difficulties would arise on the expenditure side because a 24 October Budget day would require Government to agree spending estimates towards the end of September. As a result, there would be less up-to-date information available to Departments than at present on the emerging spending outlook in the base year. In the case of the Health Vote, for example, decisions in September would, of necessity, be based on mid-year returns of actual spending in the base year by health agencies. Similarly, in the area of capital spending, almost 50% of total voted expenditure takes place in the final quarter of the year. The baseline information available to Government has implications for the quality of the decisions taken in the Estimates.

2.6: In addition, the longer time gap between the point at which decisions would need to be taken on the Estimates and the start of the financial year (a gap of nearly three months instead of six weeks) would, inevitably, mean that more developments with expenditure implications would be likely to arise during this period. Departments and Ministers would be left in a position of having to cope with these developments within whatever allocations were decided by Government in September.

2.7: Both of these aspects (less complete information and post-AEV/Budget day developments) would have implications for the Estimates and the overall Budget. To some extent, the present system copes with these issues already via the REV and supplementary Estimates. The earlier the date of the Budget, the greater the impact on the Estimates process. The key concern would be to ensure that the Estimates process would not effectively be re-opened post budget in the light of emerging trends and new developments as such a scenario would weaken the standing of published budgetary decisions. Such a development would also, apart from any other considerations, raise questions at EU level about our adherence to the EU Stability and Growth Pact as reported on in the Budget.

2.8: The duration and complexity of the Estimates campaign is dictated by the process itself (which incorporates no-policy change and multi-annual budget dimensions), the multiplicity of parties involved (15 Ministers and 44 Votes), the scale of spending (in excess of £16 billion in 2000), the linkages with other multi-annual commitments (such as the NDP and the PPF) and the level of detail which is required in terms of projected spending and receipts.

2.9: As indicated above, a 24 October Budget day would require final decisions on spending to be taken towards end-September instead of end-October. The reality is that, for various reasons, Departments would not be in a position to sign off on key decisions before the end of July on the basis of incomplete information. Meaningful negotiations at official level, Ministerial bilaterals and Government decisions on the Estimates would all have to take place over a three week period in September. This would place considerable pressure on all Ministers and Departments during the period in question and would involve guaranteed submission of Estimates proposals by end-June. This situation would, of course, be further complicated by any requirement to adopt a mid-year corrective spending package to offset emerging expenditure overruns.

2.10: In 2001, Departments will have to produce, for the first time, their MAB and Estimates figures in euro and to complete the normal analysis of figures, year-on-year comparisons, etc. in euro. Clearly, it will be easier for them to do so if the timescale for the process is not shortened by 6 weeks as it would be with a 24 October Budget.

2.11: Although many of our EU partners operate a fiscal year beginning on 1 January, it appears that their budgetary systems differ from that operating in Ireland. Some seem to have a unified tax/expenditure budget, for example, while others publish only broad macro/departmental level spending figures at budget time and publish detailed expenditure allocations, within the previously approved limits, later in the process.

2.12: On the tax side, an October Budget implies that the timeframe for submissions to the Minister and meetings of the Tax Strategy Group (TSG) would be considerably compressed. Submissions to the Minister would have to be made in the period early-September to early / mid-October. TSG meetings would have to take place mainly in September. Meetings with interest groups would take place in late September.

2.13: The Budget and Estimates process is central to the Government's overall economic strategy and to the orderly management of the public finances. It is desirable, therefore, that decisions be based on the most up-to-date data possible, including in regard to the macro-economic environment and that time be available to complete the considerable logistical and deliberative dimensions involved. Compressing the timeframe available by moving the Budget date forward would carry downsides in these respects as well as imposing a requirement for stricter discipline on the many parties involved; this is particularly the case where the Estimates are concerned, given the concern that the Budget should remain the effective final step in the Estimates process. The position for 2002 is further complicated by the short tax year in 2001 and the euro changeover on 1 January 2002. These various considerations must also be balanced against the implementation implications arising on the tax and social welfare fronts which will be considered in the following section.

1 With the earlier Budget Date, the TSG would probably have to be curtailed to a maximum of 5 meetings. One meeting would be held in June and up to 4 in September/October. The later Budget date allows up to 11 meetings.

2 12 March gives a new 140 days deadline from Budget Day and requires the amendment of the Provisional Collection of Taxes Act.

3.1: An integral part of any Budget process is the implementation of the tax and expenditure measures announced. Traditionally, this has seen a gap of at least 2 months between the Budget itself and its implementation. The particular issues in relation to income tax and PRSI changes and social welfare rate improvements are now discussed.

3.2: The Revenue Commissioners currently take 10 - 12 weeks from the date of the Budget for completion of the issue of Tax Free Allowance certificates (TFAs) to 1.5m PAYE taxpayers (2m employments) and Tax Deduction Cards (TDCs) to their 170,000 employers; this period is required both to write the necessary computer codes and to carry out "user acceptance testing" to ensure proper output. If the Budget is no later than 24 October, and is straightforward (i.e. does not involve major structural changes), Revenue envisage that they will be able to issue Tax Deduction Cards to employers by the end of the second week of December (14/15 December 2001), in order to provide for correct deductions from employees' wages in the new tax year beginning on 1 January; the corresponding TFAs would issue in early January. Given the numbers involved, Revenue do not anticipate any significant problem for An Post in delivering the relevant material to employers during the peak Christmas postal period. If the Budget contains major structural changes requiring significant programming changes (e.g. an element akin to individual tax bands), then meeting the 1 January deadline could not be guaranteed.

3.3: If the Budget is later than 24 October (e.g. a 5 December Budget), TDCs would not reach employers until after 1 January. This would mean TFAs/TDCs issuing in February and March and would result in (possibly significant) temporary under or over taxation arising in the early part of the year, because employers would continue to operate on the basis of the existing tax regime. This cash flow effect would not be significant from the overall Exchequer perspective but could be of major concern to individual taxpayers, particularly where arrears of tax are being clawed back. If significant repayments of tax were made through employer payrolls, this could impact on their cash flow and create some difficulties for them. It would also leave taxpayers beginning a tax year not knowing their tax position for the year, which would represent a deterioration in the service they have been used to.

3.4: To alleviate these difficulties, which arise in particular for 2002, Revenue would accommodate a December Budget by issuing interim TDCs deduction cards in October or November (as close as possible to year end but before Budget date) to provide employers with the most up-to-date information possible at that point. Interim TFAs would also issue to employees at this stage. These interim TDCs and TFAs would continue to apply annualised 2001 personal tax credits, bands, etc., while removing provisions for mortgage interest, health insurance (VHI and BUPA), permanent health insurance (PHI), Business Expansion Scheme (BES) and other non-recurring reliefs3.This would minimise, but not eliminate, the under / over payment of tax in the first quarter of 2002. However, Revenue would then have to process a further bulk issue of TFAs/TDCs, incorporating Budget changes, to all employees and employers in February /March 2002. This would mean duplication of work for employers in setting up their systems twice for a single tax year, while employees would not get their correct TFA entitlements for 2002 until into March. This would not give taxpayers or employers the result they would expect from moving the tax year to a calendar year and would represent a significant deterioration in terms of providing them with a quality customer service.

3.5: PRSI and Health Levy changes (both employer and/or employee and whether concerning rates, allowances, thresholds or ceilings) are notified by the Department of Social, Community and Family Affairs. Employers generally (circa 170,000) are notified jointly with Revenue of PRSI changes and changes in the operation of the PAYE system for the new tax year, while, separately, DSCFA advise payroll/software companies of changes in PRSI arrangements for all PRSI Classes in the new tax year. It should be noted that amended TFA Certificates are issued separately by Revenue and that these do not contain any material on PRSI changes or the appropriate rate or Class of PRSI to be deducted from an individual taxpayer in the new tax year. A lead in time of up to 10 weeks is required to enable

the DSCFA notification processes outlined above to be completed;

the necessary software development to be undertaken and completed by the software companies (a number of the major such companies are based in the UK); and

(c) new payroll packages to be delivered, installed and tested before the new provisions can be implemented.

It should be noted that the notification process itself, particularly to the payroll/software companies, takes the least amount of time. The bulk of the time needed between Budget Day and implementation is required to enable the necessary packages to be developed, sold (off the shelf in some cases), installed and tested so that payroll packages can run seamlessly from the first pay day of the new tax year. Accordingly, the time needed to develop and install etc. the relevant packages is not under the control of DSCFA. A December Budget date would mean that any PRSI changes announced could not be applied from 1 January; this situation is likely to prevail for the foreseeable future.

3.6: A further difficulty as regards PRSI stems from its weekly, non-cumulative nature of application which contrasts with the annual nature of the income tax system: in this regard, the Health Levy is similar to PRSI. Thus, the PRSI and Health Levy liability of employees is calculated on a weekly basis and can vary from week to week as a person's earnings move above or below relevant thresholds (or as they move in and out of employment). Moving to an annual basis would be a fundamental change for the PRSI system. The Department of Social, Community and Family Affairs are concerned that any such change, for which there are no current plans, could be detrimental to more marginalised workers.

3.7: It would be difficult, if not impossible, to implement PRSI changes in arrears (i.e. by way of employer recoupment or surcharges) as can be achieved on the taxation front in the event of a December Budget. In addition, there would be no mechanism in place to refund PRSI to (or recoup PRSI from) employees who had left a particular employment before the appropriate new year changes were implemented by an employer. At the very least, a statutory change would be required to allow for retrospection and, even then, there would be likely ongoing significant operational difficulties for employers, the Revenue Commissioners and, the Department of Social, Community and Family Affairs as well as confusion for employees generally.

3.8: One consequence of the above situation is to curtail the scope for announcing PRSI changes (other than those relating to contribution ceilings) in a December Budget which could apply from the following January. However, a distinction between first year and ongoing options might also be worth exploring if the Budget were to be held in December 2001; for example, a statutory change to allow for retrospection in the first year might be considered. While an announcement of PRSI changes ahead of the Budget is a further option, it is assumed that, for wider reasons, this would not be feasible.

3.9: Before detailing the implementation implications of the alternative Budget dates for social welfare rate increases, it is important to remember that, irrespective of the date finally chosen, the budgetary increases for weekly social welfare recipients will apply from a significantly earlier point than up to this - from 2002 onwards, these increases will be advanced by 4 months compared with 2000 and by 3 months as compared with 2001.

3.10: Weekly social welfare payments fall into two categories, viz, short-term and long-term, and involve different production and delivery approaches and timescales.

3.11: Each week

- 280,000 short-term recipients (unemployed, sickness and SWA payments) are paid by either cheque to their homes (127,000), at their local post offices either manually or electronically (131,000), or Electronic Funds Transfer (EFT) into their bank accounts (22,000);

- 620,000 long-term recipients are paid by means of Personalised Payable Order (PPO) books at post offices (520,000), or EFT (88,000) and cheques (12,000).

Increases to some 110,000 recipients on EFT can be implemented almost immediately they are announced. From the point of view of putting increases into effect quickly, and from an efficiency viewpoint generally, EFT would be the preferred option. However, even with a major drive to promote EFT now (notwithstanding the attendant problems and implications of such a move, particularly for the Post Offices), it is unlikely that this would significantly reduce the problem for the year 2002 whatever about the subsequent years. On the basis, therefore, that current payment arrangements remain largely unchanged in the short-term, the following concerns arise:

Short-Term Recipients

3.12: In order to pay the January 2002 increase to short-term recipients in their weekly cheque or postdraft, 9 weeks notice is required (i.e. circa 24 October 2001.) Providing for increased payments through a live computer system, such as the ISTS system, requires a significant level of mandatory development and testing and the Department of Social, Community and Family Affairs says that this work cannot be accommodated within a shorter period. This particularly applies in 2001 in the context of preparations for the euro changeover at the beginning of 2002. The 24 October date should allow sufficient time to undertake the system change and test work required to pay increased rates from early January. This lead in time could perhaps be reduced to 8 weeks for 2003 and subsequently, when the euro changeover would not be a factor.

3.13: In the case of short-term recipients, payment of the increase will be delayed by one week for each week's delay in the Budget announcement after 24 October; an early December 2001 Budget would see implementation of the increases delayed until around mid-February 2002. Special arrangements would have to be made for the calculation of arrears payments in these cases, both at local offices around the country for unemployment payments and at headquarters for Disability Benefit. The Department of Social, Community and Family Affairs maintain that such those arrangements would cause severe disruption and would involve substantial overtime working, particularly in the case of Disability Benefit, a scheme which is, in any event, subject to unforeseeable fluctuations caused by, e.g. flu epidemics. It is stated that past experience has shown that any disruption of the Disability Benefit system can quickly escalate and become a major public issue.

3.14: Irrespective of the date of Budget 2002, long-term recipients (other than those on EFT) will not receive their increases on time next year. In order for the increases to be reflected in their PPO books, announcement of the rate to be paid from January 2002 would be required in July 2001. This arises because the Department of Social, Community and Family Affairs has to plan a 12-month cycle which involves continuous production of 26-order pension books for 6 months with start and expiry dates staggered throughout the year. As a result, changes in the cycle cannot be implemented at short notice and, given the continuous nature of the production process, order books include payments into the following calendar year. In the current cycle, the window of opportunity for change occurs in November, when the printing programme for the next but one calendar year is settled. The next opportunity for change is November 2001 affecting the increases payable in 2003.

3.15: Given the above circumstances, new arrangements have to be put in place to pay the 2002 increases either in arrears or part arrears / part advance. Discussions are currently proceeding with An Post on the arrangements to apply regarding the delayed payment to PPO recipients of the increase. Bearing in mind that there are two main issues of books in the first quarter - widows and lone parents mainly are renewed in February (300,000) and old-age and related payments in April (320,000) - there are a number of issues to be addressed, including:

- the need to put increases into effect as early as possible in 2002 and to manage the expectations of people who are used to having increases paid at the due date;

- the fact that, in some cases, the 'arrears' payment contain an element of payment in advance, this would be unusual and would require specific approval by Government;

- possible contractual issues arising with an Post because of, inter-alia, ongoing consideration at EU level of legal issues in relation to the existing arrangements.

3.16: Consideration and discussion of the possibilities is still ongoing between the Department of Social, Community and Family Affairs and An Post. However, current thinking is that an approach along the following lines may be feasible:

- in mid-February 2002, approx. half of the clients, mainly widows and lone parents (300,000 cases) will receive renewal books containing the increased rates. The first order in these books will also contain the arrears from 1 January to that point.

- At the same time, the remaining clients, mainly old age pensioners (320,000) will receive, at their local post office, a postdraft containing arrears / part advance covering the period 1 January to April, at which point they will receive their renewal books incorporating the increased rates.

3.17: If these options do not materialise, payment will have to be made by cheque to the customer's home address. There are significant logistical difficulties associated with this option mainly in the area of unreliable address information and cheque production, it would also carry serious risks from a control viewpoint.

3.18: The Provisional Collection of Taxes Act, 1927 requires that Budget Day Financial Resolutions be confirmed within four calendar months in primary legislation; in the normal course, this is effected in the annual Finance Act. However, if the Budget is in late October, the Act may have to be amended in the 2001 Finance Bill to provide that the Financial Resolutions would remain in effect for longer than the current four month provision. The timing vis-a-vis the Oireachtas Christmas recess period is the critical factor in that regard. Retention of a December Budget date would require no legislative change.

(ii) PRSI and Social Welfare

3.19: Budgetary changes are normally implemented by means of an annual Social Welfare Bill. In the context of the Government's decision to implement future social welfare payment increases with effect from January each year, the Bill would need to be implemented before the Christmas Recess. The Minister for Social, Community and Family Affairs has explored with the Attorney-General the possible use of secondary legislation to give effect to the PRSI changes and social welfare rate increases announced in the Budget. From the Attorney-General's advice, he has concluded that there are constitutional risks involved in such a process. In any event, the Minister's powers would only at best partially cover the range of changes which may be required to social welfare legislation in order to implement those elements of a Budget package which need to be introduced at the start of or early in the new tax year. Having regard to these issues, the Minister for Social, Community and Family Affairs considers it essential to introduce a basic Social Welfare Bill which provides for the implementation of any necessary changes which must take effect early in the tax year (rates increases and PRSI changes). This would require a Budget day of 24 October at the latest. He also considers that this should make it possible to complete the notifications to employers of PRSI changes in sufficient time to enable them to amend their payroll systems in time to implement the changes from January.

3.20: The Group fully appreciates the Minister for Social, Community and Family Affairs concern to avoid possible risks in relation to the collection of PRSI revenue arising from the use of secondary legislation. However, as an alternative to the pre-Christmas passage of a Social Welfare Bill, it suggests that consideration be given to a legislative solution along the lines of the Provisional Collection of Taxes Act, which would allow PRSI changes to be applied by means of Financial Resolution subject to later confirmation. This would require legal advice. If feasible, such an approach could provide a solution based on a long standing arrangement in the taxation area.

3.21: Efficient and timely implementation of tax and social welfare changes are an integral part of the Budget process. From the viewpoint of achieving this in the most customer friendly way vis-a-vis 170,000 employers, 1.5 million PAYE taxpayers and the maximum possible number of social welfare recipients, an October Budget date would be clearly preferable; equally, the administrative burden on both the Revenue Commissioners and the Department of Social, Community and Family Affairs would be less under the October date. Legislative changes may be required whichever date is chosen.

3 In future, mortgage interest and health insurance reliefs will be granted at source while PHI will be on a net pay basis; these items, therefore, will not normally be included in TFAs.

4.1.: The euro is already the currency of the State, and the Irish pound, which is currently a subdivision of the euro, will lose even that legal status on 1 January 2002. On that date too, euro notes and coins will be introduced and IR£ notes and coins will begin to be withdrawn. The changeover will require substantial preparations by the public administration - including, especially, Revenue and Social, Community and Family Affairs - and by companies and employers. The euro changeover will also involve a significant change for citizens, including employees and social welfare recipients. The euro changeover is not a postponeable event : it will happen on 1 January 2002.

4.2: The following briefly summarises the desirable outcome, from a euro changeover point of view, as regards the timing and other arrangements relating to Budget 2002 for the parties identified above:

Revenue and Social, Community and Family Affairs It is clear from the rest of this report that the tax year/calendar year alignment has significant administrative and customer service implications for Revenue and Social, Community and Family Affairs. It is important that these should be such as to be manageable so that they do not hinder timely completion of these organisations' preparations for the changeover to the euro.

Employers The arrangements for Budget 2002, and for its implementation by employers, should be made known to employers as soon as possible. As regards the measures in the Budget itself, any tax and PRSI changes that employers are to put in place for January 2002 should be made known to them, in as much detail as possible, as early as possible. This is in order to facilitate planning; to enable the changes to be coordinated as necessary with other changes required by the euro changeover; and as far as possible to avoid "bunching" of implementation by large numbers of employers at the last minute.

Employees It is desirable that employees be given clear and timely information about any changes to the tax and PRSI systems that are to take effect from January 2002.

Social Welfare Recipients Surveys of public awareness of the euro show that the groups most at risk of low awareness include older people and people on low incomes. People in these categories are likely to be highly represented among social welfare recipients. Accordingly, it is especially desirable that social welfare recipients receive clear, timely and comprehensible information about what is going to happen their social welfare payments in January 2002.

4.3: The following briefly outlines the impact of the two different Budget dates considered in this report on employers, employees and social welfare recipients from a euro changeover point of view.

Budget on 24 October: Employers: Some employers (probably the larger ones) will have changed their payroll systems to euro (and probably completed most of their other changeover preparations) in advance of 1 January 2002. In their case, implementation of revised TDCs, and any PRSI rate changes for 2002, received before the start of 2002, should be a relatively routine matter. Other employers (probably the smaller ones) will have left their payroll changeover until the end of 2001. In their case, implementation of revised TDCs and PRSI rates, received before the start of 2002, can presumably be combined with their payroll changeover.

Employees: Employees would not receive their TFAs for 2002 until early January 2002, although the tax changes would be implemented by their employers from 1 January, coinciding with the euro changeover. Employees tax position from 1 January would be an amalgam of the Budget changes plus the removal of mortgage interest etc. reliefs from TFAs. This would need to be explained to ensure that it is not ascribed to the euro changeover but is associated with the accompanying reduction of employees' mortgage etc. payments. Any PRSI changes would be implemented in the normal way for January wages/salary payments.

Social Welfare Recipients: General For convenience, social welfare payments are made in round pounds, 50p, 20p and 10p, and from 1 January 2002 will be in round euro, 50, 20, and 10 cent. So the changeover of social welfare payments to euro will not be an exact conversion, but will be a "smoothed" conversion (always in favour of the recipient, of course). This point will require explanation no matter what date is chosen for the Budget.

for all EFT and short-term recipients, there will be 1 January implementation of the new social welfare payment rates, with a significant length of time in which to explain the Budget changes.

for long-term recipients other than EFT. The arrangements currently envisaged would mean that half the recipients would receive the increase in February, with arrears reflected in the first order of their new PPO book, while the other half would receive in February an order covering arrears/advance January to April, with their new PPO books arriving in April. The rate actually being paid from January would thus be a "smoothed" conversion.

Budget on 5 December: Employers Employers would, in October/Novemebr, receive TDCs reflecting the latest known position of their employees under tax year 2000, less any allowances for mortgage interest etc. Implementing these TDCs would not seem to be any more or less complicated than implementing the TDCs they would receive following an October Budget. (Of course, 5 December would mean that employers would receive a further

TDC, for implementation in March, but that would be after the changeover.) Any PRSI changes would not be notified to employers in time for implementation in January 2002.

Employees: Employees would receive an interim TFA cert in advance of the start of the 2002 tax year reflecting the elimination of mortgage interest etc. relief (though mortgage etc. payments would have been reduced by a similar amount). These aspects would have to be explained, in order to ensure that they were not ascribed to the euro changeover. Any PRSI changes would not be implemented for January wages/salaries payments.

Social Welfare Recipients: A 5 December Budget would mean

for EFT recipients, whether short or long term, immediate implementation of their social welfare payment rates, with a short length of time in which to explain the Budget changes.

for short-term recipients other than EFT, 5 December would mean that implementation of the increases would not occur until mid-February 2002. Their payments in January 2002 would thus be a "smoothed" conversion.

for long-term recipients other than EFT, there is no difference between what would happen under a 5 December Budget and what would happen under a 24 October Budget.

4.4: From a euro changeover perspective in the tax area, there seems to be no great difference in implementation for employers between the alternative Budget dates, while, as regards PRSI, a 24 October Budget would allow implementation of any rate changes in December 2001 and a 5 December Budget would mean implementation would be delayed until after the changeover. For employees, 24 October allows implementation of any tax and PRSI changes from 1 January 2002, while 5 December means an interim tax deduction, not reflecting the Budget, and unchanged PRSI rates, for some weeks after that date. For social welfare recipients on EFT, there is, in effect, no difference; for short-term recipients other that EFT, 24 October allows implementation from 1 January, while 5 December means deferral until February; for long-term recipients other than EFT, there is no difference between the two dates.

4.5: From a changeover point of view, it is highly desirable, whatever date and implementation arrangements are decided, that they be announced early.

5.1: The previous sections have outlined the implications of alternative Budget dates on 5 December and 24 October under various headings. For convenience, these are summarised in tabular form in the annex to this section. It has to be accepted, from the outset, that, given the tension between operational constraints on the one hand and the need for a robust foundation for Budget decisions on the other, whatever date is chosen will represent a compromise between these requirements.

5.2: The Group was keenly aware that the key decisions underpinning the Estimates and the Budget should be based on the most up to date data possible and that sufficient time should be available to complete the considerable administrative and decision making stages involved. These considerations point to the Budget being held as late as possible in the year.

5.3: On the other hand, in light of public commitments already given, the Group was conscious of the expectations among taxpayers and social welfare recipients that budgetary measures would be implemented in a timely fashion and of the desirability of not imposing an unreasonable administrative burden on the various interests involved. These latter factors point to the Budget being held earlier than at present.

5.4: The Group also noted that the position for Budget 2002 needed to take account of the consequences of shortening, for the first time, of the period available for completion of the Estimates and Budget process and of the euro changeover which will occur on 1 January 2002.

5.5: Taken together, the Group considered that these various factors made the choice of Budget date less than straightforward, especially for 2002.

5.6: In general, the Group favour moving to an earlier Budget date than at present for the years subsequent to 2002 when once-off factors such as the short tax year and the euro changeover will not apply.

5.7: The Group recommend that, in the interim, the scope for systems development in Revenue and in the Department of Social, Community and Family Affairs should be actively examined with a view to allowing greater flexibility in the choice of date than currently. The Group also recommend that a review, involving both the Department of Finance and other Departments, of the current Estimates and Budget process should be undertaken with a view to accommodating the revised timetables required for an earlier Budget.

5.8: For Budget 2002, the Group considered matters to be more finely balanced. Moving to an October date would be problematic for the management of the public finances due to the conjunction of a number of factors. These are concerns about the robustness of the data on which key expenditure and tax decisions are made, the requirement that, for the first time, the Estimates be prepared in euro and, also for the first time, the compression of the time available to prepare and consider Estimates and Budget policy options and, finally, the risk that, given the earlier point in the year at which decisions are taken, the Budget would not be the effective final step in the Estimates process. Also, even with an October date, rate increases for some 60% of social welfare recipients could not be paid on 1 January 2002. Choosing a December date would not carry the public finance management downsides but would mean that PAYE tax and most social welfare changes would be implemented some 6 to 8 weeks after 1 January 2002, with arrears/advance payments, as appropriate, and would involve an added administrative burden for the public service and employers. Of course, the feasibility of a December date assumes that the legal concerns raised in relation to social welfare /PRSI can be resolved.

5.9: On balance, the Group considered that, for Budget 2002, the December date might minimise the potential risks for this year and allow time for consideration of the initiatives in paragraph 5.7 which the Group recommend should be undertaken.

5.10: In order to facilitate planning, not least in relation to the euro changeover, and to promote public awareness, the Group strongly recommend that, whichever date is chosen for the Budget 2002, it should be announced as soon as possible. This announcement should include details of the manner in which any tax and social welfare changes will be implemented.

Appendix 1