Tuesday, September 4, 2012

4/9/2012: The Fog of Exchequer Receipts: August 2012

The Exchequer receipts and expenditure figures are out for August and the circus of media rehashing that way and this way the Department of Finance press releases is on full blast.

From the way you'd read it in the media outlets, tax receipts are up, targets are met, deficit is down, spending is down. The problem is that the bunch of one-off measures conceals the truth to such an extent that no real comparison is any longer feasible for year on year figures. The circus has painted the Government finances figures so thickly in a rainbow of banks recaps, shares sales receipts, tax reclassifications, tax receipts delays and re-bookings etc that the Government can say pretty much whatever it wants about its fiscal performance until, that is, the final annual figures are in. Even then, the charade with promo note in March will still have material influence on the figures, as will tax reclassifications and delayed tax receipts booking.

With this in mind, let's try and make some sense out of the latest Exchequer receipts results, first (expenditure and balance in later posts).

Take total tax receipts for January-August 2012. The official outrun is €22.076bn which is 1.7% ahead of target set in the Budget 2012. Alas, monthly receipts of €1.763bn is 7.1% short of target. In July 2012, monthly tax receipts were 0.2% below target. So:
Point 1: As a warning flag: revenues are now running increasingly below target levels.

Year on year tax receipts were down 1.7% in July on a monthly basis and were up 9% on aggregate January-July basis. Year-on-year receipts were down 5.7% in August on a monthly basis, and were up 7.7% on January-August aggregate basis.
Point 2: As another warning flag: tax receipts are now running for two months under last year's and this is even before we adjust for 2011-2012 reclassifications and delayed bookings of some receipts.

Now, the Department of Finance states in the footnote to its tax receipts analysis that: "Adjusting for delayed corporation tax receipts from December 2011 and the techncial [sic] reclassification of an element of PRSI income to income tax this year, aggregate tax revenues are an estimated 5.2% year-on-year at end-August, coproration [sic] tax is up 6.7% and income tax is up just under 10%". What does it mean? this means that by Department estimates, the two factors account for roughly €511 million in combined bookings into 2012 that are not comparable to 2011 figures.

Subtracting €511 million our of the total cumulated receipts implies tax receipts for January-August 2012 of €21.565bn which would be 0.7% below the Budget 2012 target. Thus,
Point 3: Tax receipts, on comparable basis, are running at below target, not ahead of it, albeit the difference is still materially small.

Here's what else is interesting, however, at the end of June the Department provided an estimate for the above adjustments of ca €472 million, at the of July it was €467 million and now at €511 million. Even allowing for rounding differences on percentages reported this looks rather strange to me.

On non-tax revenues:

  • In 2011 the Government collected €233 million from selling its shares in Bank of Ireland. This year - nil booked on that. Which largely accounts for the capital revenues being down from €1,036 million in 2011 to €813 million in 2012.
  • Again on the capital receipts side, total EU contributions to Ireland in January-August 2012 stood at €68.401 million against €43.671 million a year ago.
  • Total non-tax revenue on the current line of the balancesheet is €2.403 billion in January-August 2012 and this is up 49.4% on the same period in 2011.
  • Of the increase registered in 2012 compared to 2011, €487 million came from increases in clawbacks from the banks and Central Bank of Ireland remitted profits. In other words, that was roughly half a billion euros that could have gone to writing down mortgages, but instead went to the Government. €302 million more came from the Interest on Contingent Capital Notes, which is the fancy phrase to say it too came from the banks. Thus, all in, current non-tax revenues increases of €794.1 million were almost fully accounted for by the increases of €789 million in the state clawbacks out of the insolvent and semi-solvent banks that the state largely owns.
Point 4: Unless you believe that the banks conjure money out of thin air, any celebration of non-tax receipts improvements in January-August 2012 compared to 2011 is a celebration of Pyrrhic victory of the Exchequer witch craft inside our (as banks customers and mortgage holders) pockets.

Now, let's add all receipts together:

  • Total Exchequer receipts in January-August 2012 stood at €25.937bn against €23.146bn in 2011. 
  • The 'rise' in total Exchequer receipts of €2,791 million in 8 months of 2012 compared to the same period in 2011 includes €511 million in tax adjustments (re-labeling) and carry over from 2011, plus €789 million in new revenues clawed out of the banks. In addition, €645.7 million is booked on receipts side via the Sinking Fund transfer (which is netted out by increased expenditure).
  • So far, over the 8 months of 2012, the actual net increase in total (tax, non-tax current and non-tax capital) receipts is ca €845 million, or 3.7%.

Point 5: Disregarding expenditure effects (to be discussed later), Irish Exchequer has managed to hike its policy-controlled receipts by 3.7% y/y over the January-August period. Better than nothing, but a massive cry from the headline figure of 7.7% increase in total tax receipts and 12% rise in total receipts.

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