Thursday, April 2, 2009

Daily Economics 02/04/09: Exchequer Receipts

And so the numbers are out (here) and we are off with a race for quick analysis.

Albert Einstein once said “The definition of insanity is doing the same thing over and over again and expecting different results”. By this criteria, our two Brians are heading for a loony house at an ever increasing rate. And large swaths of Opposition that is calling for increasing levies and taxes even further are there already. Why? Well, they've been raising taxes now since October 2008 (in reality, they have de facto raised taxes by pre-announcing October Budget two months before). The end result:

All the tax heads are down on the receipts side, with a new dramatic fall-off in Corpo Tax - a clear sign that the killing fields of Brian^2+Mary Ireland Inc are now starting to get covered with the bloodied bodies of Irish companies. Well done, Brians! More tax increases is what we need next to finish off the private economy.

On the net, and I will be redoing the whole balance sheet over the weekend, tax take is now dangerously close to dipping below €30bn for 2009 as a whole. Can't say much about the exact deficit for now - until mini-Budget, but in terms of DofF forecast from January 2009 that would imply a current account deficit of €16bn and with the capital account deficit of over €6bn we are now in the territory of the combined General Gov deficit of over €22bn or almost 13% of GDP. Well done, Brians! Now is the time to raise more taxes - it has been working for the two of you so well to date.

Debt servicing costs are double year on year to cool €298mln and fees to our heroic Santa's Lille Helpers of the primary placement brokers are more than double too. Well done, Brians! Now is the time to raise some additional taxes - piling on national debt is just so much better than taking a knife to your spending plans.

Only motoring fines and national lottery fund are showing gains.

But the real scandal is on the spending side of things:
  • Agriculture & Food up from €186mln in 2008 to €350mln in 2009;
  • Community, Rural and Gaeltacht Waste (oops, Affairs, that is) up from €109.2mln in 2008 to €119.6mln in 2009. Last year, taking his high office, Brian Cowen has promised to put Gaelic Language at the heart of Gov policies. He is now clearly doing the job, so well done Brian - the Gaelic knowledge economy is just around the corner to save us all;
  • Environment, Heritage & Loc Gov up from €596.1mln to €682.5mln - the dolphins and rare boffins (in the DofF and other Gov Buildings, I presume) are grateful to you, Brian.
  • Total Voted Exp is up from €11.14bn to €11.82bn - an increase of 6.1% on 2008. Time to hike taxes on ordinary families, Brians, we've got expenses to cover!
We did find money, at this time of a plenty to contribute to the Carbon Fund Act 2007 - some €18.45mln. And non-voted salaries, pensions and allowances were up. Oirieachtas Commissions costs shot through the roof increasing by 16.5%.
The Exchequer deficit now stands at €3.72bn - up from €354mln in 2008 or a whooooping 951% up! Time to raise taxes, Brians, for this is what our academic economists and the ESRI are telling you to do, and since you are paying them a pretty penny, they gotta know, don't they?

Few more points: Pre-Supplementary Budget Aggregates since Budget 2009 also published by the DofF provide the following inputs into the mini-Budget
Of import is a more realistic assessment of the economy at -6.75% for GDP. However, this is still excessively optimistic, setting the stage for a small further reduction in the mini-Budget next week. I expect DofF to come down to -7% growth in GDP. Again, in my view, a -8.0-8.5% figure is probably closer to what will happen. On the Gen Gov Deficit, -12.75% is well in excess of my own earlier estimates of 11.76% (here). But my forecast has built in assumption that we actually save on target for 2009. Thus, I am probably closer now to the mini-Budget outcome than to what DofF is doing here. Tax revenue of €34bn is now looking optimistic. It is likely that tax situation going to deteriorate further as returns lag receipts across many main tax heads.

"The savings agreed by Government on February 3, together with other minor estimating adjustments, lead to further savings in 2009 of €437 million in Gross Voted Current expenditure and €300 million in Capital. In Net terms, which reflects the savings from the pension-related levy, the Current reduction is €1.45 billion. These reductions are offset by additional expenditure pressures of €1,387 million of arising from the further deterioration in the labour market. Receipts from the Health Levy are also been forecast to fall by €160 million in this context. Taken together, these factors lead to a pre-Supplementary Budget figure for Gross Voted Total
expenditure of €65.4 million [sic] (a 4.8% year-on-year increase), or €49.4 million [sic] in Net terms (a 0.2% increase). This corresponding increases for Gross Current and Net Current expenditure are 7.5% and 2.7% respectively."

This is a really telling paragraph. It shows that even having pre-committed itself to €2bn in savings this year as far back as July 2008 and having repeated this target on many public occasions, the Government is still incapable of delivering this much. In the mean time, the spending continues to rise, rapidly.


Myles Duffy said...

Constantin - the year-on-year change since March 2008 are: customs -27%, excise - 31%, CGT - 22%, CAT - 70%, Stamps - 62%, income tax -6%, corporation tax - 43%. /Myles

TrueEconomics said...

Indeed. Of course on Income Tax this includes income levies and a part of the pension contribution increase for public sector workers, so -6% is a deceptive figure.VAT at -70% is looking good. What this tells me is that Irish people have taken up their only patriotic duty - to save money for their families. In other words, they went shopping North and to Lidl/Aldi discounters. Now, it is also worth observing that overall tax take is down some €3.03bn on 2008.

Anonymous said...

The question will be of course how the government proceeds next Tuesday.

My expectation is that they will waste a one-time only opportunity to tackle the ridiculously high social welfare budget by slashing payments to levels which reflect lower cost of living and our closest neighbours such as the UK. Decreasing even more the incentive to work. We simply can longer afford our gold-plated social welfare payouts.

The Government will instead (of course) target the middle income group > €30k and the so called 'fat cats' earning more the 100k i.e. those whose voice is not represented on the streets!

On top of doubling the levies and not dealing with social welfare, the morons in government will also abolish +/or introduce the following:

(a)the DIRT rate 23% ceiling removed i.e. make it subject to income tax (bye bye billions of savings!!!) not to mention it wont actually raise any money as rates collapse and returns are made in Nov 2010 - but it will scare the big money overseas.

(b) The PRSI ceiling lifted - hitting the middle/upper income bracket with a stealth 4% tax on top of levies up to 6% - Bye Bye wealth creators, entrepreneurs and prospective international employers

(c) means test or limit child care allowances (this I agree with BUT not combined with the other hits on the middle/upper income bracket!!

(d) announce property tax on private residence for next year: this is the most insane of all so it warrants further analysis:

We have plenty of evidence from our pre-98 property tax days - it was a disaster which produced no net income. AND I believe if any attempt to re-introduce this it will be a spectacular failure - do we honestly think people who paid huge stamp duty and saddled with big management fees and mortgage costs will do their patriotic duty and pay? short answer is NO!!! This property tax will cost too much to collect; it will be political dynamite - up for abolition at every election.

Contrary to David McWilliam's view that it is not a tax on work and therefore should be pursued I would strongly disagree. For instance who does he think would be asked be pay such a tax? those who are jobless, NO; those on pensions, NO; those on low incomes NO: those on middle to high incomes YES; so in fact it would be yet another tax on work NOT to mention further damaging the already crippled property sector. Which by the way we own through our guarantee of the banking system.

The time to consider this type of annual property tax is (if ever) only when we see clear signs of recovery so it can be truly counter-cyclical, but not beforehand.

(e) water rates for next year - I agree with this and have no choice anyway EU requirement

(f) reduce tax breaks on redundancy payments (excusing it by saying it will only affect to 'rich' i.e. payments above €100k - of course these unfortunates wont be rich for long as there aint any jobs left and the banks will want this €100k to payback loans/mortgages etc.

(g) and of course the unexpected sneaky option - which will be designed to keep the Vincent Browne and Fintan O'Toole's of this world happy.

As for me I will be looking at every way for me and my 30 employees to leave this sinking island - possibly the UK or Holland - if my dire expectations of lefty populous, lost opportunity budget prove correct!


Anonymous said...

ANON. I agree. You can absolutely sure that Lenihan will target those who squeel less i.e. the €100,000+ bracket. You can ADD university fees, pension and healthcare where Lenihan and his fellow goons will look to higher earners to bail out the bloated social welfare and public sector. I wonder are we cynically waiting for the IMF to come in and force us to finaly slash the untouchable public and social welfare bill? Jobseeker allowance is 75% less in the UK. Sadly I think this government will try to play to gallery and therefore put most of the burden on the dwindling higher earners and naively expect this shrinking group to remain in Eire. They will not - this group is much more mobile than the govt thinks. Like Anon, I am already looking into equiv. tax in the UK. I do agree with a property tax, but think that to bring it in now when property (and their indebted owners) are completely screwed is utter nonsense and I also agree collection would be difficult.

I remember not paying the tax for a number of years in the 90s and I was in good company. Perhaps look at usage taxes such as water rates.

Lets hope we are both wrong.

FINTAN Glasnevin.

Anonymous said...

The critical subhead is social welfare.
Critically it has sapped the will to work of too many people.An increase in the levies at the lower end will simply drive more people into social welfare.

The lower end should have been taxed during the boom.We had hundreds of thousands of immigrants paying little or no tax .
Over 20% of immigrants are unemployed and now on social welfare.As all the other tax revenue sub heads are down ,income tax is the only one they are going to target to pay for this.
This means immigration has been a burden on the Irish taxpayer.This ,in my opinion will have a negative effect on sentiment towards immigration.

In effect this was a subsidy for the builders/Developers who availed of cheap immigrant labour and the real cost of that labour has been deferred until now and is being picked up by PAYE tax payers.

More PPS numbers were issued to Non nationals in February and March than were issued to Irish people.
Its hard to credit that all these new non nationals are taking up jobs here in this savage downturn.
Something is not right.Is it possible some are somehow coming here and immediately going on social welfare?

Why is rent income supplement being paid out when there are 250,ooo empty houses in the State?
There is an oversupply of accomodation.Rent should be on the floor.Instead the taxpayer is subsiding landlords.
I think the figure for this is around a Billion euros a year.

Social welfare expenditure is skyrocketing.It would be sheer madness if people are signing on here without having worked here.

As Yeats said..
''...things fall apart,the centre cannot hold...''

The middle classes cannot hold in this madness.

Perhaps Constantin can make sense of whats going on?

TrueEconomics said...

Guys, 3 comments above and, unfortunately - courtesy of our great Eircom, my broadband is barely working to do a detailed reply. But I am going to do this in a follow-up post - so see the main blog.

Keep on contributing, and please keep things/comment within a civil discussion space. Anger is a right reaction and fully justified, but let's not give 'them' an excuse to discount what we think.