Thursday, September 2, 2010

Economics 2/9/10: Exchequer results - expenditure

So if there was no miracle happening on the receipts side, what was Minister Lenihan having in mind while drumming about the improvements in the fiscal position? Perhaps it was a dramatic turnaround on the Exchequer spending side?

Let's take a look at the year on year performance across all departments (2 charts below):
Looks like all departments are performing well in cutting back spending, save for Social Welfare and the department of Communications, Energy and Natural Resources. However, even a cursory glance suggests that something is amiss. In particular, it is pretty clear that the cuts are primarily happening on the capital side.

What the above charts do not tell us is that there is an interesting dynamic structure emerging to the cuts. This is highlighted in the next chart:
Notice the following in the chart above:
  • Capital spending cuts overall have clearly dominated current spending cuts - for example, in August the ratio of capital spending cuts to current spending cuts stood at -34% for the former and -1.6% for the latter;
  • Capital spending cuts are finally starting to decline in magnitude, having peaked in June at 36% and having declined to -34% in August. It looks like the state is finally beginning to spend - though still anemically - on the few capital projects it promised to deliver this year.
  • Current spending cuts became shallower and shallower as the year progressed. In January 2010 current spending was 11.9% below the same period of 2009. In 5 months to May it fell to -5% compared to 5 months to May 2009. In August it is down only 1.6% on the same period of 2009.
Predictably, cuts in the net cumulative voted expenditure are also getting shallower and shallower:
So far we are down 5.8% on 2009. But this is not exactly a massive achievement, given the trends underlying cuts to date.

Another problem is that given the Croke Park agreement, there is a clear reason as to why the current spending cuts are getting weaker.

Either way - just as with receipts, I am not seeing any improvements anywhere in these numbers. If anything - Government spending is way too slow to adjust and is adjusting so far in a wrong direction.
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