Economics 5/12/10: Links to recent articles on irish economy

Here is the link to my article in Saturday Irish Independent on the topic of FG and Labor 'alternative' Budget 2011 proposals: here.

Here is the link to another article from Saturday, this one from the Irish Examiner on the topic of banks debt default as an option for Ireland: here.

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.

Economics 2/12/10: Exchequer returns - Burden of taxation

Let's take a quick look at the tax burden incidence as per latest Exchequer results.
Proportionally, the burden of taxes paid continues to rise (year on year) for Income Tax, VAT (although VAT burden increases have eased a little bit) and Excise Tax. The burden has been falling for CGT and CAT, Stamps and Customs. It is flat for Corporation Tax.
This goes back to the arguments I made recently - no matter whether it is the Exchequer who assumes new debt, or the banks (under the Guarantee and protection extended to them by the Exchequer), the taxpayers are the ones who will be on the hook to repay it all.

Economics 2/12/10: Exchequer returns - tax receipts

The mixed bag - aka Irish economy - story of the Live Register from yesterday is continuing into today. The Exchequer results for November are being heralded by many 'official' analysts as a sign of significant improvement in the economy.

Are they? Really? Let's update my charts on the matter.

Top level view: tax receipts through end of November totaled €29.489 billion in 2010. This is some €470 million of 1.6% ahead of the DofF projections. Happy times? In 2008 they were €38.86 billion and in the "terrible year" of 2009 they were €30.75 billion. So the good news is that we are still in the worst year of the crisis when it comes to total tax receipts.

I guess I am just not buying the story of 'close to target' being a net positive signal for the economy. It might be a net positive for the DofF - who's forecasts are now accurate (after 3 years worth of trying). But for the rest of this economy, things are worse today - as tax revenues go - than they were a year ago.
Now, November is the month when tax receipts accelerate dramatically. Good news, this year was no worse in the rate of increase than last, even a little better. Bad news, acceleration from October to November has been slower in this year than in 2008. Glass is half full on dynamics.

For 11 months of 2010, all tax heads, except for income tax are on target or ahead of target. Again - good news for DofF forecasters, but not great news for the economy.
You can see how both income tax and VAT are performing poorer in 2010 than in 2009 and 2008. I'll summarize all these differences in a table below. But for now - all other tax heads in charts:
Corporate tax is performing 'spectacularly' better than target +19.1% - sizzling. But year on year it is still 2.2% lower in 2010 than in 2009 and a whooping 26.3% below the levels of 2008. Errr... you see, targets don't really matter, reality does. Ditto for Excise tax: down 0.2% on 2009 and 19.9% on 2008.

Next, then:
Stamps perform better in 2010 than in 2009 so far. This is the one tax head of two that has shown an improvement year on year - plus 7.55% on 2009 and yet still -43.8% on 2008.
CGT... oh, what the hell - you can see, the story is the same as for all other tax heads save for stamps and customs.

Here's a summary table: performance to target (the DofF Delight special):
Charted over the year above.

Now, relative to previous years (the Real McCoy):

Year-on-year rates of change in charts now:

As noted before: with exception for two, by now pretty minor tax heads, accounting for just 2.9% of total tax revenue (Stamps) and 0.7% (Customs) of total tax revenue, everything else is performing worse this year than in 2009. I guess the only good news is that they eprforming not as badly as they could have were the things to completely collapse. Some solace then.

Economics 2/12/10: What PMIs tell us about the job market

An interesting additional point of view on jobs market. Today's Manufacturing PMIs suggest no improvement in November jobs outlook in Manufacturing sectors:
So far, there are absolutely no signs of jobs creation here with employment PMIs indicators:

• Services - October reading (latest so far) at 46.2 - well below expansion 50+) and declining on September reading of 49.8; and
• Manufacturing - November reading at 49.3, signaling worsening performance from already contractionary 49.8 in October.
  

Economics 1/12/10: Live Register

Live Register data was out today, throwing some positive news into the generally adverse newsflow. The headline figure is that November LR has declined 4,200 in seasonally adjusted terms month on month.

This follows declines of 5,400 in September and 6,200 in October. In 11 months through November we are still clocking and increase of 9,900. Expressed in weekly terms, chart below illustrates the dynamics.


Now, net average and monthly changes:
Seasonally-adjusted implied unemployment rate dipped slightly again, for the third month in the row:
Unemployment, as estimated by the LR, now stands at 13.5%, having slipped from the high of 13.8% back in August. It is impossible to tell, based on LR, whether the moderation is driven by contracting labour force (with LR dropouts) or emigration (ditto) or outflow of LR recipients to education, or all three. However, some reduction in new jobs destruction can be expected over a period of time of 3-5 months, given the level of jobs destruction prior to mid 2010. Whether this is sustainable trend or a 'dead cat bounce' effect is a matter of time.

One possible glimpse at what is going on relates to the males LR numbers, which has fallen by a larger proportion than female in November. Males unemployment was much faster to rise and started to do so earlier in the cycle, which means that males are now more likely to come off LR and also to emigrate. However, the emigration story might be overplayed here. There was a monthly decrease of 4,698 (-1.3%) in Irish nationals on LR and an increase of 147 (+0.2%) in non-Irish nationals. So, with non-nationals more likely to emigrate (return migration or movement to another third country for employment), these numbers suggest that emigration is most likely not a significant contributor to the LR changes.

On the other hand, based on occupational groups, the encouraging signs are clearly evident:

• The largest percentage decrease was in the Professional group (-6.0%), followed by the Clerical and secretarial group (-3.9%) - potentially, a sign that professional services are starting to stabilize

In contrast,

• In the year to November 2010 the largest percentage increase was in the Other occupations group (+11.2%), while the next largest increases were in the Personal and protective service (+8.8%) and Sales (+7.1%) groups.
  
• The largest percentage decrease was in the Managers and administrators group (-3.7%).
  

So overall, the numbers would be cautiously optimistic, at least as far as potentially signaling a bottoming out of the jobs destruction cycle.

One point of pressure that remains is the duration of unemployment:

• There was a monthly unadjusted decrease of 7,270 (-2.6%) in short term (less than one year) claimants on the Live Register in November, while the number of long term claimants increased by 2,719 (1.8%). This clearly shows that transition into long-term unemployment continues.

Likewise of concern is the quality of employment (although, of course, having at least a part-time job is much better than none at all):

• In the year to November 2010 the number of casual and part-time workers increased by 6,578 (+8.9%).