Showing posts with label Irish tax. Show all posts
Showing posts with label Irish tax. Show all posts

Monday, February 10, 2020

9/2/20: Ireland: More of a [reformed] Tax Haven than Ever Before?..


With the demise of the last Government and the uncertain waters of Irish politics stirred by the latest election results, let me take a quick glance at the Government's tenure in terms of perhaps the most important international trend that truly threatens to shake the core foundations of the Irish economy: the global drive to severely restrict corporate tax havens.

In Ireland, thanks to the CSO's hard labours, there is an explicit measure of the role played by the international tax avoiding corporations in the country economy. It is a very imperfect measure, in so far as it significantly underestimates the true extent of the tax arbitrage that Ireland is facilitating. But it is a robust measure, nonetheless, because it accounts for the lore egregious schemes run in capital investment segments of the corporate tax strategies.

The measure is the gap between the official Irish GDP and the CSO-computed modified Gross National Income, or GNI*. The larger the gap, the greater is the role of the tax shifting multinationals in the Irish national accounts. The larger the gap, the more bogus is the GDP as a measure of the true economic activity in Ireland. The larger the gap, the poorer is Ireland in real economic terms as opposed to the internationally-used GDP terms. You get the notion.

So here are some numbers, using CSO data:


When Fine Gael came to power in 2011, Irish GNI* (the more real measure of the economy) was 26.03 percent lower than the Irish GDP, in nominal terms. This, effectively, meant that tax shenanigans of the multinational corporations were de facto running at at least 26% of the total Irish economic activity.

Fine Gael proceeded to unleash and/or promise major tax reforms aimed at reducing these activities that (as 2014 Budget, released in October 2013 claimed, were harmful to Ireland's reputation internationally. The Government 'closed' the most notorious tax avoidance scheme, the Double Irish, in 2014, and introduced a major new 'innovation', known as the Knowledge Development Box (aka, replacement for the egregious Double Irish) in 2016. In September 2018, the Government published an ambitious Roadmap on Corporation Tax Reform (an aspirational document aiming to appease US and European critics of Ireland's tax avoidance platform).

So one would expect that the gap between Irish GNI* and GDP should fall in size, as Ireland was cautiously being brought into the 21st century by the FG government. Well, by the time the clocks chimed the end of 2018, Irish GNI* was 39.06 percent below the Irish GDP. The gap did not close, but instead blew up.

Over the tenure of FG in office, the gap rose more than 50 percent! Based on 2018 data (the latest we have so far), for every EUR1 in GDP that Irish national accounts claim to be our officially-declared income, whooping EUR0.391 is a mis-statement that only exists in the imaginary world of fake corporate accounts, engineered to squirrel that money from other countries tax authorities. Remember the caveat - this is an underestimate of the true extent of corporate tax shifting that flows through Ireland. But you have an idea. In 2011, the number was EUR0.260, in 2007, on the cusp of the Celtic Garfield's Demise, it was EUR0.1605 and in 2000-2003, the years of the Celtic Garfield's birth when Charlie McCreevy hiked public expenditure by a whooping 48 percent, it was averaging EUR0.1509.

Think about this, folks: McCreevy never waged a battle to get Irish tax system's reputation up in the eyes of the critically-minded foreigners and yet, his tenure's end was associated with the tax optimisation intensity in the Irish economy being whooping 24 percentage points below that of the 'reformist' Fine Gael.

This is mind-bending.

Wednesday, August 23, 2017

23/8/17: Ireland: A Haven for SPVs?


Ireland scored another ‘first’ in the league tables relating to tax optimisation and avoidance, staying at the top of the Euro area rankings as a Special Purpose Vehicles (SPVs) destination: http://uk.reuters.com/article/uk-ireland-funds-idUKKCN1AY1AK (featuring my comment, amongst others).

As my comment in the article linked above alludes, there is a combination of factors that is driving Ireland’s ‘competitiveness’ in this area. Some are positive for the economy and non-zero-game in relation to our trading partners, e.g. 
- Ireland providing a functional access to the European markets via regulatory and markets infrastructure arrangements that facilitate trading from Dublin into the rest of the EEC;
- Ireland offering a strong platform for on-shoring human capital, a much more functional platform than any other EU nation, due to greater openness to skills-based migration, English language, common law and open culture;
- Ireland serves as a clustering centre for a range of financial services functions, making it more attractive than traditional tax havens for conducting real business.

Over the recent decades, Irish Governments and business organisations have been aggressive (or better said - active) in positioning the country as a platform for inward investment. The first waves of this strategy involved emphasis on pure tax optimisation (e.g. during the 1990s), with subsequent efforts (often less successful and slower to develop) involving building specialist niches of financial services activities in Ireland (e.g. funds management in the 2000s and focus on specialist listings, such as debt and SPVs, in the 2000s-2010s).

On the other hand, aggressive positioning achieved by Ireland in tax optimisation-driven FDI and tax-focused corporate inversions has become a significant drag on the country’s reputation as a functional (as opposed to post-box) business centre. In addition, the Financial Crisis has introduced new dimensions to this reputational erosion: in addition to the G20-initiated push for greater tax transparency and harmonisation, Ireland also - mistakenly - pursued tax-based incentives for vulture funds acquiring distressed Irish properties from the likes of Nama and IBRC. A combination of growing tax inversions, BEPS reviews and reforms, vulture funds aggressive use of the tax structures has resulted in a more recent tightening of the SPVs regulations and oversight. 

Striking a balance between real economic incentives and egregious tax optimisation is a hard target to hit for a small open economy that, like Ireland, faces very tangible and aggressive international competition. The bad news is that we are yet to find a ‘golden ratio’ for proper regulation and supervision regimes that can allow us to retain a competitive edge, while rebuilding positive reputation with our trading partners and investors as a place for doing functional/tangible business. The good news is that we are becoming more aware of the need to strike such a balance.



Wednesday, September 21, 2016

21/9/16: Apple Tax Case: Not the Rate, the Loopholes


My column for the Village covering the Apple Tax fiasco: http://villagemagazine.ie/index.php/2016/09/not-the-rate-the-loopholes/


As it says on the 'tin' - the problem with Apple Tax is not the rate of corporate taxation set in law in Ireland (the 12.5% 'red line' rate), and not tax competition, nor the benign nature of tax exemptions that Ireland bestows on all companies, including the MNCs. The problem is that these competitive aspects of the Irish regime are simply not enough for the likes of Apple, which pursued and obtained access to exemptions that any ordinary company operating in Ireland cannot avail of.

Hence, the red herring of the arguments that the EU Competition ruling is an attack on Irish tax rate. It is, instead, a challenge to the asymmetric preferences granted in the past (and still in use during the ongoing phase-out period) to a handful of MNCs over and above domestic companies. Lest we forget, for decades, Irish State had no qualms operating an openly discriminatory taxation regime that treated foreign investment-backed companies differently from domestic companies. Lest we omit considering the present, Irish State still has no qualms taxing human capital of its residents at rates far in excess of those applying to physical and financial capital. Lest we fail to think about it, Irish State has no qualms asymmetrically allocating the burden of the crisis to Irish people over and above our banks, foreign investors, foreign bondholders and vulture funds.

I am one of the most vocal advocates of low (benign) taxation, flat tax, competitive regulatory regimes (coupled with robust enforcement) and other means for improving the functioning of the private markets. Always been one and remain. I support real investment in the economy, both foreign and domestic and believe in a level playing field for entrepreneurs and enterprises, alike. But, folks, the debate around Apple Tax is not about 12.5% tax rate and Ireland's tax autonomy, but about asymmetric nature of privilege.

Thursday, October 9, 2014

9/10/2014: A couple of new black eyes for our Corporate Tax regime


Oh dear... as if Apple news were not pretty bleak for Ireland Inc, Wall Street Journal is now covering Google's tax practices with Ireland featuring prominently: http://online.wsj.com/articles/googles-tax-setup-faces-french-challenge-1412790355 and related explanatory note on how Google tax schemes work: http://blogs.wsj.com/digits/2014/10/08/how-googles-french-tax-structure-works/.

With a handy graph:

And an ugly question: Presumably (per Irish Government and its 'analysts'), Google is in Ireland for the quality of our workforce and R&D capabilities. Which begs asking: is that quality Irish workforce and R&D in Bahama-ed 'Ireland' or in Irish Ireland?

But never mind, bad news keep rolling in. It now looks like the savings of EUR350m per annum on the IMF 'repayment' deal are going to come with some hefty price tags... http://www.independent.ie/business/irish/germans-want-irish-tax-reform-in-return-for-deal-on-imf-loans-30650496.html

Did someone say 'reputational capital' is illusory? How about reputational damage costs?..

Friday, February 1, 2013

1/2/2013: The Innocence of Double-Irish


Irish corporate tax policies issues have now penetrated (agt last) into the RTE newsflow - link here.  Of course, the most priceless reaction is, surprise, surprise, via our Minister Noonan:

"In the Dáil in recent weeks, Finance Minister Michael Noonan said: “The problem with the so-called ‘Double Irish’ from Ireland’s point of view is that it has that name. People think that something we do here gives rise to it. That is not the case.” Mr Noonan blamed tax codes elsewhere, including the way the US government treats certain tax arrangements."

Yep, folks, that's right, Irish law allowing dodgy entities set up off-shore to be tax exempt is, apparently, not Irish problem. Serves those Americans right, then...

I'd love to see him repeat this comes St Patricks Day in Washington. Should be the joke of the dinner.

Yes, US tax codes are to be blamed. And so are the UK, German, French, etc Governments' inability to tackle what is rampant tax optimisation. But in the end, Double-Irish is Double-Irish. Not a Double-Japanese or a Tripple-Mongolian.

Note: here are some lists of recent literature on Irish corporate tax heaven.

Tuesday, December 4, 2012

4/12/2012: Irish Exchequer Returns Jan-Nov 2012


So 2013 Budget will be expected to deliver 'cuts' and 'revenue measures' to bring fiscal stance €3.5 billion closer (or so the claim goes) to the balance. Which prompted the Eamon Gilmore to utter this:
"It is the budget that is going to get us to 85% of the adjustment that has to be made, and will therefore put the end in sight for these types of measures and these types of budgets".

Right. €3.5 billion will be added to the annual coffers on expectation side comes tomorrow. €3 billion will be subtracted on actual side comes March 2013 for the ritual burning of the promo notes repayments, and IL&P - the insolvent zombie bank owned by the state - will repay €2.45 billion worth of bonds using Government money comes second week of January. I guess, something is in sight, while something is a certainty-equivalent. €3.5 billion 'adjustments' vs €5.5 billion bonfire.

Six years into this shambolic 'austerity heroism' and we are, where we are:

  1. On expectations forward, the Government will still have fiscal deficit of 7.5% of GDP in the end of 2013, should Gilmore's 'end in sight' hopes materialise. That is set off against pre-banks measures deficit of 7.3% in 2008. In fact, the 'end' will not be in sight even into 2017, when the IMF forecasts Irish Government deficit to be -1.8% - well within the EU 3% bounds, but still consistent with Government overspending compared to revenues.
  2. Overall Government balance ex-banks supports in Ireland in 2012 will stand around 8.3% of GDP. In 2013 it is expected to hit 7.5% of GDP. The peak of insolvency was 11.5% of GDP in 2009, which means that by 2013 end we have closed 4 percentage points of GDP in fiscal deficits out of 8.5 percentage points adjustment required for 2009-2015 period. In Mr Gilmore's terms, we would have traveled not 85% of the road, but 47% of the road.

But wait, there's more. Here's a snapshot of the latest Exchequer returns for January-November 2012:

  • Government tax revenue has fell 0.5% below the target with the shortfall of €171 million and although tax revenues were €1.96 billion ahead of same period (January-November) 2011, stripping out reclassifications of USC and the delayed tax receipts from 2011 carried over to 2012, this year tax receipts are running up 4.5% year on year.
  • Keep in mind that target refers not to the Budget 2012 targets, but to revised targets of April 2012. 
  • Meanwhile, Net Voted Government Expenditure came in at 0.6% above target. 
  • So in a sum, on annualized basis, expenditure running 1.03% ahead of projections and revenue is running 0.86% below target. All of the sudden, the case of 'best boy in class' starts to look silly.
Things are even worse when you look at the expenditure side closer.

  • Total Net Voted Expenditure came in at €40,635 million in 11 months through November 2012, which is €26 million above last year's, and  is 0.6% ahead of target set out in April. In other words, Ireland's heroic efforts to contain runaway public sector costs have yielded savings of €26 million in 11 months through November 2012.
  • All of the net savings relative to target came in from the Capital side of expenditure, which is 20.5% below t2011 levels(-€629 million). Now, full year target savings on capital side are €562 million, which means that capital spending cuts have already overcompensated the expenditure cuts by €67 million. 
  • On current expenditure side things are much worse. Relative to target, current spending is running at +1.7% (excess of €654 million). It was supposed to run at -1.6% reduction compared to 2011 for the full year 2012, but is currently running at +1.6% compared to Jan-Nov 2011. The swing is over €1.2 billion of overspend.
  • Recall that in 2011 Irish Government expropriated €470 million worth of pensions funds through the 0.6% pensions levy in order to fund its glamorous Jobs Initiative. It now has cut €629 million from capital spending budget or €405 million more than it planned. In effect, thus, the entire pensions grab went to fund not Jobs Initiative, but current spending by the state.
  • The savage austerity this Government allegedly unleashed saved on the net €26 million in 11 months. Pathetic does not even begin to describe this policy of destroying the future of the economy to achieve effectively absolutely nothing in terms of structural adjustments.
  • The overspend took place, predictably, and at least to some extent justifiably by Health and Social Welfare. However, two other departments have posted excess spending compared to the target: Public Expenditure & Shambles-- err Reforms -- posted excess spending overall, while Transport, Tourism and Sport has managed to overspend on the current spending side of things.
On the balance side of things, stripping out banks measures and capital cuts, but retaining reclassifications of revenues and carry-over of revenues from 2011 into 2012, overall current account balance deficit was €9.626 billion in 2012, contrasted by the deficit of €9.712 billion in 2011. This suggests that the Government has managed to reduce the deficit on current account side by €86 million,

Laughable as this sounds, stripping out carry over revenues from 2011, the deficit on current side of the Exchequer finances was €9.45 billion in 2011 and that rose to €9.97 billion in 2012. Which means that the actual current account deficit is not falling, but rising.

Now, let's control for banks measures:

  • In 2011 Irish state spent €2.3 billion bailing out IL&P, plus €3.085bn repaying promo notes for IBRC and €5.268bn on banks recaps. Total banks contribution to the deficit was thus €10.653 billion, This implies that overall general government deficit ex-banks was €10.716 billion in 2011.
  • In 2012 we spent €1.3 billion propping up again IL&P (this time - its remnants) which implies ex-banks measures deficit of €11.668bn
  • Wait a second, you shall shout at this point in time - 2012 ex-banks deficit is actually worse, not better than 2011 one. And you shall be right. There are some small items around, like our propping up Quinn Insurance fallout cost us €449.8mln in 2012 and only €280mln in 2011. We also paid €509.5 million (that's right - almost the amount the Government hopes to raise from the Property Tax in 2013) on buying shares in ESM - the fund that we were supposedly desperately needed access to during the Government campaign for Fiscal Compact Referendum, but nowadays no longer will require, since we are 'regaining access to the markets'. We also received €1.018 billion worth of cash from our sale of Bank of Ireland shares in 2011 that we did not repeat on receipts side in 2012. And more... but in the end, when all reckoned and counted for, there is effectively no real deficit reduction. Nothing dramatic happened, folks. The austerity fairy flew by and left not a trace, but few sparkles in the sky.
  • Aside note - pittance, but hurtful. In 2012 Department for Finance estimates total Irish contributions to the EU Budget will run at €1.39 billion gross. For 2013 the estimate is €1.444 billion. That is a rise of €59 million. Put this into perspective - currently, the Government has run away from its previous commitment to provide ringfenced beds for acute care patients at risk of infections, e.g. those suffering from Cystic Fibrosis. I bet €59 million EU is insisting this insolvent Government must wrestle out of the economy to pay Brussels would go some way fixing the issue.
In the mean time, our interest payments on debt have been steadily accelerating. In January-November 2011 our debt servicing cost us €3.866 billion. This year over the same period of time we spent €5.659 billion plus change on same. Uplift of 46.4% in one year alone.

So here you have it, folks. This Government has an option: bring Irish debt into ESM, for which we paid the entrance fees, and avail of cheap rates. Go into the markets and raise the cost of funding our overall debt even higher - from €6.17bn annual running cost in 2012 to what? Oh, dofF projects 2013 cost to be €8.11 billion - a swing of additional €1.94 billion. So over two years 2012 and 2013, Irish debt servicing costs would have risen by €3.89 billion swallowing more than 1/2 of all fiscal 'adjustments' to be delivered over the same two years.

At this stage, there is really no longer any point of going on. No matter what this Government says tomorrow, no matter what Mr Gilmore can see in his hazed existence on his Ministerial cloud cuckoo, real figures show that Europe's 'best boy in class' is slipping into economic coma. 

Monday, November 19, 2012

19/11/2012: Two points on Irish Corporate Tax



Two thoughts, related (on foot of the current discussions of the Irish Corporate Tax Haven in the EU, US and in Ireland):

1) US/EU/Ireland strategy dilemma: 
(X) : US is unhappy about MNCs underpaying tax in the US via international tax arbitrage
(Y) : US' strategic ally - the EU - is unhappy about US MNCs underpaying tax in the EU via international tax arbitrage
(Z) : Ireland is a trading & investment ally with the US and a member of the EU
(W): Ireland is a major center for tax arbitrage by the MNCs

So now: Z  =  X  +  Y  -  W  +  V(?)

Where V(?) is the unknown 'good will' that US and EU must feel toward Ireland to sustain the above equation.

2) And the above implies this: In the current environment: 
-- incentives for the US to increase (X) are higher than normal (driven by the fiscal cliff and the need to onshore jobs); 
-- while incentives for the EU are to increase (Y) are also much higher than normal (driven by EU own fiscal deleveraging and aggravated by the fact that EU member states are funding 'bailout' for Ireland), 
-- yet at the same time, incentives for Ireland to keep increasing (W) are also extremely heightened (due to the Irish crisis 'solution' model of 'exporting out of the recession and fiscal deleveraging'). 

All of which means that V(?) is rapidly diminishing, squeezed by contradicting (X)+(Y) and (W) rapidly pulling the national interests further and further apart.

I'd say (as an old boxer) - we are heading for the corner... Good luck to anyone thinking we can sustain current corporate tax regime in this world...

19/11/2012: Links on Irish Corporate Tax Haven


Due to page loading restriction on post links, I am moving this list to a new location.

Here is the original page with a number of links on the topic of Ireland as a Corporate Tax Haven. And here's a link to the Irish Government 'defense' of the same.

Updated 19/11/2012: And a new article on US Multinationals facing tax demands / pressures in Europe with explicit referencing of Ireland: http://www.nytimes.com/2012/11/19/technology/19iht-tax19.html

Updated 20/11/2012: No country named, but you know who they are talking about here: http://www.ft.com/intl/cms/s/0/798f30d2-3242-11e2-916a-00144feabdc0.html#axzz2CaviTlTt

Updated 9/12/2012: And more on Google using Ireland as a conduit for tax minimization: http://www.independent.ie/business/irish/google-pays-just-014-tax-in-seven-years-3319796.html
The core problem highlighted here is not the headline 0.14% tax rate, but €47 billion worth of revenues booked via Ireland - an exemplification of Ireland's beggar-thy-neighbor economic policies.

Updated 20/12/2012: Here's The Economist article on Starbucks UK case, mentioning Google use of Irish tax system: http://www.economist.com/news/business/21568432-starbuckss-tax-troubles-are-sign-things-come-multinationals-wake-up-and-smell?fsrc=scn/tw/te/tr/wakeupandsmellthecoffee

Saturday, October 13, 2012

13/10/2012: Irish corporate tax haven in the news flow



Some links I collected over time on the case of irish corporate tax haven:

Here's a list of recent articles on 'Tax Haven' Ireland:




EU noticing that our manufacturing is largely a 'fake' : link here http://www.irishexaminer.com/business/eu-irish-output-is-distorted-210505.html

Canada's estimated tax exhales via Ireland = CAD23.5bn in 2011, 3rd largest : link here http://www.huffingtonpost.ca/2012/08/17/tax-havens-canadian-banks_n_1797331.html


And priceless non-Ireland related (so far…) case of HuffPo hypocrisy : link here http://order-order.com/2012/10/12/introducing-huffpo-luxembourg/
Though do keep in mind that AOL is in Ireland too.

And some more from earlier dates:

Here's Financial Secrecy Rankings from 2011 referencing Ireland's lack of transfer pricing regulations as the core driver for turning "Ireland into a source of loopholes in international tax": link here http://www.secrecyjurisdictions.com/PDF/Ireland.pdf



Why ireland is an EU Corporate Tax Haven post (search the page for February 21st, 2011 post) : link here http://treasureislands.org/progressive-tax-blog-reloaded/


The link above also mentions Boston Scientific case

The case if WPP group: link here (search the site page for "Don't be fooled by WPP's" phrase http://treasureislands.org/progressive-tax-blog-reloaded/

Updated:
Another link on the latest MNCs effective tax rates: http://www.independent.ie/business/irish/dell-pays-just-15m-tax-despite-sales-of-96bn-3276711.html

Yet more on the story of Google in Ireland:
http://www.irishtimes.com/newspaper/world/2012/1101/1224325978868.html

Updated 05/11/2012: Now it's Apple's turn: http://www.businessinsider.com/apple-tax-rate-2012-11

And more today - this one on Bain Capital: http://www.businessinsider.com/bain-capitals-dutch-tax-plan-2012-11

Updated 06/11/2012: More on Apple: http://www.independent.ie/business/irish/apple-used-ireland-to-pay-just-2pc-tax-on-nonus-profits-3285168.html

And latest idea of UK-German cooperation on cracking down on MNCs tax avoidance: http://www.guardian.co.uk/business/2012/nov/05/uk-germany-tax-loopholes-multinationals

Updated 12/11/2012: Telegraph on US trio of UK tax 'optimizers': http://www.telegraph.co.uk/finance/personalfinance/consumertips/tax/9673358/Starbucks-Amazon-and-Google-admit-using-favourable-tax-jurisdictions.html

Updated 16/11/2012: Two items both via Michael Taft:
Article on Irish corporate tax rate and budgetary policy:
http://www.thejournal.ie/readme/corporation-tax-budget-674461-Nov2012/?utm_source=shortlink

Statement from the EU Congress identifying Ireland as one of tax havens (from 2004):
http://www.gpo.gov/fdsys/pkg/CPRT-112SPRT70710/pdf/CPRT-112SPRT70710.pdf
see bottom of page 30.

Updated 18/11/2012: Dutch Sandwich Tax Scheme and google: http://arstechnica.com/business/2012/11/dutch-sandwich-with-a-side-of-tax-relief-may-soon-be-off-googles-menu/

Saturday, January 7, 2012

7/1/2012: Irish Exchequer Results 2011 - Shifting Tax Burde

In the previous 3 posts we focused on Exchequer receipts, total expenditure by relevant department head, and the trends in capital v current spending. In this post, consider the relative incidence of taxation burden.

Over the years of the crisis, several trends became apparent when it comes to the shifting burden of taxes across various heads. These are summarized in the following table and chart:



To summarize these trends, over the years of this crisis,
  • Income tax share of total tax revenue has risen from just under 29% in 2007 to almost 41% in 2011.
  • VAT share of total tax revenue has fallen, but not as dramatically as one might have expected, declining from 30.7% in 2007 to 29.7% in 2011
  • MNCs supply some 50% of the total corporation tax receipts in Ireland. And they are having, allegedly, an exports boom with expatriated profits up (see QNA analysis last month). Yet, despite this (the exports-led recovery thingy) corporation tax receipts are down (see earlier post on tax receipts, linked above) and they are not just down in absolute terms. In 2007-2011 period, share of total revenue accruing to the corporation tax receipts has fallen from 13.5% to 10.3%. So if there is an exports-led recovery underway somewhere, would, please, Minister Noonan show us the proverbial money?
 So on the tax side of equation, the 'austerity' we've been experiencing is a real one - full of pain for households (whose share of total tax payments now stands at around 58% - some 12 percentage points above it levels in 2007) and the real sweet times for the corporates (the ones that are still managing to make profits to pay taxes, that is). This, perhaps, explains why even those working in protected sectors are talking about their biggest losses coming from tax changes.

Tuesday, December 6, 2011

06/12/2011: Budget 2012 - quick guide

In days to come I will be writing about the Budget 2012 in the press, so this is a quick summary of my current view. The Budget is a combination of:
  • Safety (35%) - the Croke Park remains intact and largest vested interest in the state remains unchecked
  • Platitude (5%) - a belated, but welcome increase in mortgage interest relief for 2004-2008 buyers
  • Homage to Bertie (10%) - all measures aimed at stimulating growth in the economy are property reliefs and tax incentives and
  • Absurdity (50%) - explained below
Absurdity of this Budget arises from glaring logical inconsistencies of its measures and stated policy objectives:
  1. The Irish Government is concerned with the stability of the banks deposits. It raises DIRT and CGT
  2. The Irish Government is concerned with jobs destruction. It raises VAT, fuel taxes, capital taxes and does nothing to correct for egregious, entrepreneurship reducing USC surcharge on self-employed. It also makes it more risky for firms to hire workers
  3. The Government is concerned with tax revenues lags. It introduces tax hikes that will drive more economic activity into the Black Markets - VAT, petrol tax, cigarettes tax etc
  4. The Government is concerned with declining private consumption. It introduces VAT hike, cigarettes hike, and measures reducing disposable income
  5. The Government is concerned with skills bottlenecks. it introduces higher cost of education
  6. The Government is concerned with high demand for public health services. It raises cost of buying private insurance, thus cutting back incentives to hold that which at least partially offsets rising costs of higher demand for public services
  7. The Government is concerned with underfunding of private sector pensions. It removes 50% credit for employer PRSI for contributions to occupational pension schemes

Monday, December 5, 2011

05/12/2011: Irish Exchequer Receipts: November 2011

Time to catch up with that data on Exchequer receipts for November - the critical month that makes or breaks Government budgets.

Income tax receipts: these are down to €12,709mln in 11 months of 2011, or -€272mln to target (-2.1%) but an impressive 22.5% above same period 2010 levels.

Sounds like tax policies of the past bearing fruit? Not really. Income tax rose €2,336 on 2010 in absolute terms, but at least €1,850mln of this is due to Health Levy reclassification as USC and aggregation into income tax receipts. Yes, folks, for all income tax increases in years past, the Exchequer netted less than €500mln in new revenues this year, or to be slightly more precise - an uplift not of claimed 22.5% (DofF maths), but of closer to just below 4.7%. The picture below looks good, but in reality, Income tax revenues are running below 2008 and 2009 levels, still, once Health Levy is factored in.


More ominously, the under-€500mln lead this year is based on the annual rate of Health Levy pay-in for 2010 spread evenly over all months. Of course, it probably was also peaking at around November, as usual seasonality in returns applied to it as well as to other income-related measures. Which means that it is quite possible that the annual rate of income tax increases will be even lower, once we see December figures than 4.7% figure suggests.

Let's recall that these figures come on top of shrinking workforce and rising unemployment and you get the picture - people at work are not getting anywhere, with their taxes rising dramatically in recent years, but Government revenue is not recovering either.

When it comes to VAT (second largest source of state revenues), the numbers are abysmal. November 2011 revenue is at €9,550mln or €464mln off target and 3.3% below 2010 figure (-€464mln). VAT receipts are 7.9% below those for the same period of 2009. Chart below shows what happens


Corporation tax receipts - the reflection of our booming exporting economy came in at €3,510mln or €236mln behind target and 4.3% or -€158mln down on 2010. Compared to 2009 these are now off 6.43% or -€241mln. Fourth straight year of decline.


Excise tax, the third largest category, is upo a whooping €15mln on target to €4,130mln, year on year the uplift is €39mln or 0.9%. And there was an even greater uplift in Stamps - up €442mln o  target to €1,297mln and up 51.6% year on year. Except, of course, that uplift is accounted for by the hit-and-run pension levy. Net of the pension levy, Stamps are actually down 1.75% yoy.



So total tax receipts are:

  • Down €520mln on target (-1.6%) but officially up 7.9% (+€2,325mln) yoy
  • Up just €18mln year on year once we net out Pension & Health Levies.
  • Down on target in 3 out of top 4 tax headings and 
  • Down on target in 5 out of 8 headings

Meanwhile, rosy forecasts continue to flow from the DofF which projects that 2012 total tax revenue will rise 4.13% (see here)... pass that funny gas mask, doc.



Wednesday, October 5, 2011

05/10/2011: Tax burden distribution: Q3 2011

Tax profile for September yielded another sign of continued shift in tax burden onto the shoulders of ordinary households, courtesy of:

  1. Continued underperformance in corporate tax returns despite booming exports activity
  2. Continued graft of household budgets under the USC and levies.
Overall tax burden in Q3 2011 has shifted as follows:



  • Q2 2011 share of Income tax receipts in total receipts was 39.52%. Q3 2011 share of Income tax receipts in total receipts was 38.40% against Q3 2010 share of 33.20% and Q3 2007 share of 28.04%
  • Q2 2011 share of VAT receipts in total receipts was 33.22%. Q3 2011 share of VAT receipts in total receipts was 33.17% against Q3 2010 share of 36.81% and Q3 2007 share of 37.41%
  • Q2 2011 share of Corporation tax receipts in total receipts was 9.32%. Q3 2011 share of Corporation tax receipts in total receipts was 8.52% against Q3 2010 share of 9.86% and Q3 2007 share of 7.39%
  • Q2 2011 share of Excise receipts in total receipts was 14.4%. Q3 2011 share of Excise receipts in total receipts was 13.4% against Q3 2010 share of 14.77% and Q3 2007 share of 13.79%
  • Stamps, CGT and CAT combined share in Q2 2011 was 2.64% against Q3 2011 share of 5.67% and 4.73% in Q3 2010 and 12.67% in Q3 2007.
Charts to illustrate:

05/10/2011: Tax receipts for September

Tax receipts for September released yesterday show predictable evolution along the trend established in recent months - the trend of broadly matching the targets, but continuing to surprise on the downside in some core categories. In other words, no signs of recovery here, folks.

Here are the details.

Income tax came in at €9,254mln (this, of course, includes USC, rendering annual comparisons virtually meaningless). Compared to the target, Income tax receipts were up €147mln or 1.6%. Year on year Income tax came in at +25.7%, much of which is due to levies and USC, making multi-annual comparisons even less meaningful. Annual target for the category envisions an uplift of 25.3%yoy so we are slightly ahead of that for now.


The bright-ish spot that is Income tax is offset by the continued fall off in VAT. Through September 2011, VAT receipts stood at €7,994mln down on the target of €8,294mln (-3.6% or €300mln shortfall). Year on year VAT receipts are down 2.04% or -€167mln. VAT receipts are now down 7.7% on comparable period of 2009 and mark the worst year-to-date for 2007-present period.

Corporation tax - the Big White Hope of the 'exports-led recovery' is below target at €2,054mln (do notice that Government's Great Hope is less than 1/4 of the income tax as far as contribution to the overall Exchequer balance goes). Target was €2,085mln, so the shortfall now stands at -1.5% or €31mln. Corporation tax performance through September 2011 is now at the worst levels in 2007-present period despite all the record activities in exporting sectors, which again puts the boot into the Government's claims that exports-led recovery will restore our economy to health.

Excise tax is also underperforming the target, coming in at €3,229mln or €77mln (-2.3%) below the target. Excise tax revenues are also below 2010 levels by some 1.4% so far, implying that through September, 2011 is the worst year since 2007 in terms of excise tax collection.

In terms of smaller taxes:
  • Stamps came in at surprisingly high levels of €1,124mln in 9 months through September, up €384mln or 51.9% on the target. This builds on gains in July and, most likely, represents incidental returns from one-off activities, such as €457mln expropriation of private pension funds via the FG/LP levy (HT to Jerry Moriarty of http://www.iapf.ie)
  • Capital taxes are below target and posting the worst year so far for the entire 2007-present period.
Overall tax returns are now at €24.098bn, up 0.7% or €160mln on the taget and 8.7% on 2010 performance, with virtually all the yoy gains achieved due to USC reclassifying health levy into tax revenue, plus through increases in tax burden on households.
Relative to overall annual target, 0.7% increase on target through September 2011 and 8.7% increase yoy in outrun to-date are contrasted by the annual target set at 9.9% over 2010 outrun, so we do have to step up tax returns performance in months to come dramatically to deliver on the annual target.

More on the tax burden distribution in the subsequent post.

To conclude - tax receipts show no signs of substantive change in the overall Exchequer position on 2010 broadly confirming that 'exports-led recovery' thesis for restoring Irish economy to health, at the present, remains invalid.

Tuesday, July 12, 2011

12/07/2011: Irish Tax Rates in International Perspective - Part 2

More tax comparatives, courtesy of OECD dataset. Note, these refer to 2009 tax returns.

In the previous post (here), I provided some assessments of the overall taxation burden in Ireland compared to EU27, plus Norway, Israel and Switzerland. Now, let's look at components of the total taxes.

First - taxes on production:
What this chart above tells us is that we are not distinct from the sample average in terms of our taxes on production expressed as a function of GNP, while we are below average when expressed in terms of GDP:
  • Total production and imports tax revenues in Ireland stood at 14.0% of GNP and 11.5% GDP in 2009. Sample average stood at 13.1% (median 13.0%) and +/- 0.5 STDEV band is (11.0, 14.4). So Irish taxes on production and imports as a share of GNP were above sample average. Again, for comparison : Switzerland was at 6.8% of GDP, while Sweden at 19.0%.
  • Total production and imports tax revenues are broken down into Taxes on Products, and Other Taxes on Production. Taxes on Products in Ireland yielded 12.4% of GNP and 10.2% of GDP against sample average of 11.6% (median 11.3%), with +/- 0.5 STDEV band around the mean of (10.6,12.7). Again, Irish tax yields here were within the band when expressed in terms of GNP and below the mean when expressed against GDP. Other Taxes on Products (other than Vat, Import Duties and direct taxes on products) accounted for 1.3% of GDP and 1.6% of GNP - against the mean of 1.5% and the +/- 0.5 STDEV band of (0.9,2.1). Neither GDP nor GNP comparative here was out of line with the mean.
  • Taxes on Products mentioned above can be further broken down into Vat, Taxes & Duties on Imports (ex-Vat), Taxes on products ex-Vat & Import taxes. VAT in Ireland in 2009 accounted for 6.4% of GDP and 7.8% of GNP. Sample average here was 7.3% with +/- 0.5 STDEV band around the mean of (6.6,8.0), median of 7.4, which means that Irish Vat receipts were in line with the sample average in terms of GNP, but below the mean in terms of GDP. In terms of Taxes on products ex-Vat & Import taxes, the same picture holds. In terms of taxes and Duties on Imports ex-Vat, Irish receipts were above the mean (statistically significantly) for both GDP and GNP measures.
Next, Irish Times / ESRI / Trade Unions' favorite taxes on Income and Wealth:
Remember, we allegedly have very low taxes on these and more needs to be extracted out of the 'Irish rich' :
  • Total current taxes on income and wealth in Ireland stood at 10.7% of GDP and 13% of GNP. This compares against the sample average of 11.9% of GDP (median of 10.8%) with +/- 0.5 STDEV band around the mean of(9.3, 14.5). In other words, our taxes were slightly (but statistically insignificantly) above average in terms of GNP and also slightly (and again statistically insignificantly) below average in terms of GDP.
  • The above can be broken down into Taxes on Income, and Other Current Taxes. Taxes on income yielded 12.5% of GNP and 10.3% of GDP. Both are within sample average range: sample average was 11.3%, +/- 0.5 STDEV band around the mean was (8.8,13.8) and median was 10.4%. Other current taxes were small at 0.4% of GDP and 0.5% of GNP, but also within the range of the mean of 0.6% of GDP.
  • Capital taxes came in within the mean range in terms of both GDP and GNP comparatives.
  • Total income tax related receipts and capital taxes accounted for 22.4% of GDP and 27.2% of GNP in Ireland in 2009. The sample average was 25.2% and the median was 24.4%. +/- 0.5 STDEV band around the mean was (22.0, 28.5), which means that our income and wealth taxes were solidly within the range of the mean for both GDP and GNP measures. An interesting coincidence - Swiss and Netherlands' taxes in this heading were bang on identical as a function of GDP to ours.
Social Contributions taxes:
Now, keep in mind that social contributions are meant to pay for social protection services. For which we, in Ireland, should have lower demand than in other states of EU due to younger population, but the demand on social welfare side does offset this due to a spike in unemployment. Social protection taxes in Ireland have also been dramatically increased in Budget 2011 - not reflected in the data above.
  • Social Contributions is the largest component of the tax receipts here, with Irish contributions accounting for 7.0% of GNP and 5.8% of GDP. The mean was 10.6 and the median 11.2, while +/- 0.5 STDEV band around the mean was (8.7,12.5). This means Irish Social Contributions overall were below the mean in terms of GDP and GNP.
  • Let's take a look as to why. Our Employers' contributions (at 3.3% of GDP and 4.0% of GNP against the mean of 6.3% and band of (4.9, 7.7)) fell short of the mean in terms of GDP and GNP. The same was true for our Contributions by self- and non-employed (o.2% of GDP and GNP against the average of 1.1% with the median of 0.7% and the band of (0.6, 1.6)).
  • The above 'below average" performance was offset slightly by the Employees Contributions which came in at 2.3% of GDP and 2.8% of GNP against the mean of 3.2% with the median of 3.1% and +/- 0.5 STDEV band around the mean of (2.4, 4.1). In other words, our Employees Contribution is within the average for GNP metric, but below the average for GDP metric.

So now on to the overall tax burden in this economy. As highlighted in the previous post, our total tax revenue stood at 35.9% of GNP and 29.6% of GDP. The average for the sample was 36.5% against the median of 35.9%. The +/- 0.5 STDEV band around the mean was (33.5, 39.6) which means that our overall tax burden
  • expressed as a function of GNP was bang on with the median, and statistically indistinguishable from the mean;
  • ex pressed as a function of GDP was statistically significantly below the mean.
Again, folks, the data above shows that by virtually all comparisons, we are a country with average tax burdens - not a low tax economy.

Sunday, July 10, 2011

10/07/2011: Irish Tax Rates in International Perspective

Some interesting international comparisons for tax revenues across the EU27, plus Israel, Norway and Switzerland (no Iceland, sadly), courtesy of the OECD dataset - last updated April 27, 2011. I added Ireland's tax ratios relative to GNP based on CSO data for all the years 1999-2009.

Let's run some comparisons:
  • In 1999, total tax revenues in Ireland were 33.2% of GDP and 38.9 GNP which compares to 37.% of GDP for the simple average of 30 countries in the sample and 37.2 median. There was a slight (0.3) skew in the data. With a standard deviation of 7.0 that year, Irish tax/GNP ratio was well within the average, which is confirmed by the rank attained by Ireland as 12th highest tax economy in the group.
  • In 2003, total tax revenues in Ireland were 30.3% of GDP, which of course would be consistent with FF/PDs 'low tax' policies the Left is keen of accusing them of. Alas same year total tax revenue in Ireland stood at 35.9% GNP which compares to 36.7% of GDP for the simple average of 30 countries in the sample and 36 median. So as Irish tax revenue as a share of economy declined, so did the sample average. The new skew was 0.2 lower than in 1999. Hence, with a standard deviation of 6.5 that year, Irish tax/GNP ratio was again well within the average - actually even closer to the average - which is confirmed by the rank attained by Ireland as 16th highest tax economy in the group.
  • Now, note that within both of the above years, in terms of GDP comparative, Irish taxes were ranked 22nd and 26th highest in the sample.
  • Zoom on to 2007 when Irish tax revenues accounted for 32.0% of GDP and 38.8% of GNP against the sample average of 38% of GDP and a standard deviation of 5.8. There was zero skewness that year. Once again, there was no statistical difference between Irish tax rates and the average. Ireland ranked 25th highest tax economy in comparison against GDP and 14th in comparison to GNP.
  • 2009 is the latest year we have comparatives for and in that year, Irish Government tax revenue accounted for 29.6% of GDP and 35.9% of GNP, which (GNP figure) again was statistically indistinguishable from the mean which was 36.7% (with standard deviation of 6.1 and skew of 0.2).
So now, let's map the above data:
Notice the following features of the above chart:
  • Irish tax returns as a function GDP are more volatile than in terms of GNP - in fact historical standard deviation for Irish tax revenues in terms of GDP is 1.406 against that for GNP of 1.210. The median standard deviation for the sample of 30 countries is 0.736.
  • Irish tax returns as a function of GDP are always statistically significantly different from the average, but our tax returns as a function of GNP are never once outside the average. In other words, folks, our tax burdens are average. Not low, not high - average.
  • Only within the period of 2001-2003 did our tax returns as measured in relation to GNP fall statistically significantly below those for Euro area (EA17).
Let's put our tax revenues against some comparable countries. I divided the following two charts into Small Open Economies that are members of the Euro area and those that are not:
Interestingly, for the Euro are countries, Sweden, Belgium, Austria and Finland have tax burdens in excess of the average (note they are above the 1/2 STDEV band relating to the mean. Notice that all of the countries in that group, with exception of debt-ridden Belgium, are experiencing declines in their tax burden since 1999. Apparently, to the chagrin of our friends in the Trade Unions, Tasc and Irish Times - the ones so keen on shouting about the FF/PD coalition tax policies - the Nordics too were run by right-wing free-marketeers.

Next, notice the countries within the trace band around the mean - these are the Netherlands, Lux, Slovenia, Ireland (GNP), Portugal and Czech. Greece has dropped below the average range around 2004. It's an interesting neighborhood we are in, which includes highly aggressive tax competitor such as the Netherlands.

Lastly, we have a truly aggressively competitive Slovakia.

So again, there is no evidence in sight that Ireland is or was a low tax haven.

Now, for non-Euro countries:
Speaks for itself, but let me cover one little point. Switzerland has ranked within lowest 5 tax economies in 10 out of 11 years between 1999 and 2009. The country with functional public services and great public infrastructure has managed its affairs on the average tax revenues of just 29.3% of its GDP against the average of 31.7% of GDP and 37.5% of GNP for Ireland. So, really, folks, cut this crap about 'low taxes have ruined Irish economy/society'. The Swiss do it on less than us, better than us and achieve great social cohesion, civility and cultural development while using three languages where we can't master two. It's not in how much you spend, it's how you spend it.

Thursday, June 2, 2011

03/05/11: Exchequer receipts for May

Exchequer returns for May are in and the results are pretty much in line with everyone's expectations. On the surface things are improving, but in reality, our fiscal problems are not going away.

Here's the analysis of receipts (analysis of expenditure will follow in a separate post):
  • Income tax receipts came in at €5.061bn inclusive of the USC, which is 9.2% above 2009 levels and 19.93% above 2010 level. How much of this is due to USC and how much was substituted away from other sources of revenue, such as health levies etc.

  • VAT receipts offer a more direct comparative - VAT receipts stood at €4.867bn in May 2011 slightly down on €4.873bn a year ago.
  • Corporate tax receipts - another gauge of economic activity, this time dominated by MNCs - are down: May 2011 level was €599mln, as opposed to €748mln a year ago. Thus Corporate tax receipts are down 19.92% on 2010 and 47.41% on 2009. For comparative purpose, May 2008 receipts were €1.357bn - more than double 2011 levels, while 2007 receipts were €1.484bn.

  • Excise tax receipts came in at €1.791bn in May, slightly up on May 2010 when they reached €1.704bn, the variation of 5.1% yoy, the receipts are also up on May 2009 - by 2.11%.
  • Stamps continue unabated decline - down to €235mln in May 2011 or 3.69% yoy and 20.07% on 2009. To put things into perspective, May 2007 stamps were €1.438bn.

  • Capital taxes are really taking a serious dive. CGT is down 25.23% year on year and 56.09% on 2009, reaching just €83mln in May 2011. CAT is down 66.09% yoy and 63.21% on 2009 at €39mln in May 2011. Combined CGT and CAT stood at €1.168bn in May 2007, €744mln in May 2008, €295mln in May 2009, €226mln in May 2010 and €122mln in May 2011. Ouch - that global capex boom of 2010 has clearly passed Ireland untouched and this can only mean one thing - we are into the 4th year of collapsed investment now.
  • Lastly, customs duties stood at €98mln in May, 18.1% up yoy

  • Total tax receipts, therefore, came in at €12.795bn in 5 months through May 2011. This is 5.6% above the level of tax receipts for the same period of 2010 and 5.43% below 2009.

  • The Exchequer deficit for the five months through May 2011 now stands at €10.231bn inclusive of €3.060bn promisory notes capital injections to INBS and Anglo in March. May 2010 deficit was €7.867bn (ex-banks) and 2009 deficit for the period was €10.588bn.
So on the net, tax receipts suggest to me that economic activity has stalled. All comparable tax heads across years relating to economic growth - corporate tax, VAT, capital taxes - are performing either in line with 2010 or below. The only significant increases in tax heads are where new taxes were implemented and some of these are in effect transfers from non-tax receipts side, implying that increase in tax receipts via USC, for example, includes transfer of health levy which has an effect of increasing expenditure side.

Saturday, December 4, 2010

Economics 4/12/10: Exchequer expenditure side

Let's take a look at the dynamics of the Exchequer expenditure, building on the data released for November earlier this week.

First the total expenditure:
On total spending side, November 2010 posted improvement of €1.795 billion year on year or 4.22%, and €2.867 billion on November 2008, or 6.57%. Much of this came out of the capital investment cuts, but even putting this aside it is clear that adjustments on the spending side of Exchequer balance sheet have been too slow to reach the levels required (ca 20-25%).

Next, by separate departments.
A cut of 28.53% on 2009 levels in November.
Chart above shows bizarre reality of our budgetary allocations. Arts, Sport and Tourism gobbled up some 2.2 times more resources than Communications, Energy and Natural Resources in November 2010. This was 2.67 times in 2008, and 2.26x in 2009. No one is to say that Arts, Sport and Tourism are not important, but does anyone feel we've got some priorities screwed up pretty solidly here?
Community, Rural and Gaeltacht Affairs - with a budget 1.97 times (November 2010) greater than that of the Communications, Energy and Natural Resources has also been one of the core laggards in delivering savings. Presumably because it finances such vital economic activities as delivery of Irish language translations of the speeches of our Dear Leaders. Again, anyone seriously thinking that our priorities should be in spending double the amount we spend on communications, energy and natural resources on rural supports schemes and Gaeltacht subsidies?
Education - despite what we might have heard - is one of the least affected spending departments, compared to others. Year on year November 2010 delivered cuts of 4.3%, while 2 year cuts amounted to 3.2%. This does look like at least some priorities might be right. In contrast, ETE saw cuts of 26.9% over 2009-2010 span (November to November) and 26.2% of these came in 2008-2010.

Just in case if you think we were already spending enough on preserving various arts, linguistic and other cultural values, here comes Environment, Heritage and Local Government (of course, I am being slightly sarcastic, as it also provides funding for Local Government):
Environment, Heritage and Local Government delivered the largest cuts of all departments year on year - at 36.3% through November. It also delivered the largest cut on 2008 - 44.1%. In contrast, boffins at Finance are still lagging the average cuts with 2009-2010 reductions of just 4.3% and cumulative 2008-2010 cut of 17.7%.
Foreign Affairs are down 26.7% on 2008 levels and most of this came in in 2009, so 2009-2010 November to November figures are -4.8%. Health - a giant of all departments with a budget of 26.2% of total spending in November 2010 and 27.1% for the full year 2009 and 27.9% in 2008. Notice that as with Education, the priority of inflicting least cuts in Health is also held steady. Overall Health is down 15.3% on 2008 and 11.2% on 2009.
Social Welfare accounted for 22.3% of total departmental spending in the full year 2009 and 19.1% in 2008. These figures rose to 28.65% in 11 months through November 2010. In fact, the department is the only one where the expenditure has risen steadily in 2009 and 2010, for quite apparent reasons. Total rise was 40% over the last 2 years and 21.8% of that came in 12 months since November 2009.

Like Finance, Taoiseach's Group is enjoying shallower cuts than other departments:
So far, Taoiseach's Group lost 17.8% of its 2008 level spending, while Transport lost 30.1%. In part, this reflects differences in the size of capital budgets for two departments, but in part it also represents the skewed priorities of this Government when it comes to cutting current spending, especially within core civil service numbers.

Table below summarizes these results of annual comparisons:

Next, lets plot levels and percentages of reductions in total expenditures, year on year:
Notice the decline in 2009-2010 savings in relative terms over the course of the year. This can be explained in part by the often mentioned, but never confirmed, delays in payments by the Government to suppliers and a lag in capital expenditure.

Chart below summarizes the 2008-2010 changes in spending by quarter (with 4th quarter reflected as to-date figures through November):

Now, for the last bit - the deficit:
Notice that the above is not including banks measures in 2010, but does include bank measures in 2009, which of course, obscures the true extent of our savings. But that is a matter for another post.