20/12/2012: Pensions, health costs & education fees for 2014-2015

Staying with the IMF report on Ireland, and with the theme of 2014-2015 adjustments, here's again what the IMF had to say on what we should expect from the Government:

"The authorities should outline the remaining consolidation measures for 2014–15 around the time of Budget 2013 (MEFP ¶8). The program envisages additional consolidation of 3 percent of GDP over 2014–15. Taking into account the measures already specified for these years (such as on capital spending), and carryover savings from earlier measures, new measures of about 1½ to 2 percent of GDP remain to be identified for 2014-15."

I wrote about the above here. But there's more:

"To maximize the credibility of fiscal consolidation, and to reduce household and business uncertainties, the authorities should set out directions for some of the deeper reforms that will deliver this effort. These could include, for instance, on the revenue side, reforming tax reliefs on private pension contributions; and on the expenditure side, greater use of generic drugs and primary and community healthcare, and an affordable loan scheme for tertiary education to enable rising demand to be met at reasonable cost."

Further, per box-out on Health costs overrun: "there is scope for increased cost recovery in respect of private patients‘ use of public hospitals"

Hence, per IMF, the Government should hit even harder privately provided pensions (on top of the wealth tax already imposed), thus undermining even more private pensions pools and increasing dependency on state pensions. For those of us with kids, IMF - concerned with already unsustainably high personal debt levels - has in store more debt. This time to pay for our kids education. And for those of us with health insurance, there is more to pay too.

The above combination of measures is idiocy of the highest order. Per IMF, Irish economy is suffering from private debt overhang which leads to more deleveraging, less consumption and less investment. And these lead to lower growth. I agree. But what IMF is proposing is going to:

• Increase private debts and reduce the speed of deleveraging, and
• Raise the demand for already stretched public services.

This is the Willie Sutton moment for Ireland: the state (with the IMF blessing) is simply plundering through any source of money left in the country is a hope of finding a quick fix for Government insolvency. Now, with low hanging fruit already bagged, this process is starting to directly impact our ability to sustain private debts. But no one gives a damn! As Sutton, allegedly claimed, it makes sense to rob banks, because that is where the money are. Alas, with banks out of money, the Government, prompted by the IMF 'advice' is going to continue robbing us.

So a message to our Pensions industry, which hoped that going along with expropriation of customers' funds via pensions levy would allow the industry to avoid changes to tax incentives on pensions (the blood of the sector demand). Prepare for tax reliefs savaging. Once you fail to stand up to the bullies and protect the interests of your customers, you deserve what you are going to get. Every bit of it.

19/12/2012: Fiscal Issues, flagged by the IMF

Keep on reading the IMF report, folks. Nice little bots on offer regarding the fiscal programme performance.

Platitudes abound, well-deserved, but...

"A combination of slower growth, higher unemployment, and the over-run in health spending, have dimmed prospects for any significant fiscal over performance in 2012. Indeed, given the weak economic conditions, only about half of the 6 percent of GDP consolidation effort over 2011-12 has translated into headline primary balance improvement. [Meaning that we've been running into a massive headwind, with pants caught on rose bushes behind us...] Nonetheless, the authorities‘ consistent achievement of the original program fiscal targets despite adverse macroeconomic conditions gives confidence in their institutional capacity and commitment to consolidation."

Question is, when will rose bushes thorns get our fiscal pants shredded? We don't know, but here's the road ahead:

Of course, we knew this before, but it is a nice reminder that Enda Kenny's claim that Budget 2013 is going to be the hardest of all budgets is simply bull - the above figures have to be delivered on top of Enda's 'hardest' Budget 2013. Per IMF, however:
"The program envisages additional consolidation of 3 percent of GDP over 2014–15. Taking into account the measures already specified for these years (such as on capital spending), and carryover savings from earlier measures, new measures of about 1½ to 2 percent of GDP remain to be identified for 2014-15.

"To maximize the credibility of fiscal consolidation, and to reduce household and business uncertainties, the authorities should set out directions for some of the deeper reforms that will deliver this effort. These could include, for instance, on the revenue side, reforming tax reliefs on private pension contributions; and on the expenditure side, greater use of generic drugs and primary and community healthcare, and an affordable loan scheme for tertiary education to enable rising demand to be met at reasonable cost."

In other words, the Government will have to find somewhere around €3-3.2bn more cuts/tax hikes in 2014-2015 on top of those already factored in for 2013.

Now, in spirit with IMF paper, let me reproduce for you a box-out from IMF report on public sector wages in Ireland:

Enjoy the above - you can enlarge the text by clicking on the images.

6/12/2012: Why was development land left out of Property Tax net?

The Government published the long-delayed and super-secret until now Thornhill Group report into the structuring of the property tax. One point that the report raises is:

"The Group notes the recommendation of the 2009 Commission on Taxation for a recurrent tax on zoned development land and suggests consideration be given to the proposal with a view to supporting proper long term planning and sustainable development. "

Now, the Government has opted for a property tax based on 'market value' assessment. However:

1. Land is property
2. Land has market value that can be assessed

Why is development land, zoned land, any other land not covered by the Property Tax?

Budget 2013 measures clearly subsidize financially-instrumented property speculators over those who invest in more efficient use of their homes. With exemption of development land from the tax net, the Budget also subsidizes land banking and land speculation. Once again, at the expense of ordinary homeowners.

5/12/2012: Pre-Budget 2013 tunes

Ireland's pre-Budget 2013 arithmetic:

• Budget 2013 Cuts & Tax hikes = €3.5 billion
• IL&P (bust state-owned 'bank') bonds repayments January 2013 = €2.45 billion
• Promo Note (IBRC - toxic loans dump) repayment March 2013 = €3.1 billion
• Interest on Government debt: 2011 = €3.9 billion, 2012 = €5.7 billion, 2013 = €8.1 billion, 2012-2013 increase of €2.4 billion
• Adding things up: -€3.5 billion adjustment + €5.55 billion 'banks' wastage + €2.4 billion increase in Ireland financing for "our partners' help" = net €4.45 billion will be sucked out of this economy by pure policy psychosis.
• 69% of the entire annual adjustment on fiscal side, even assuming it will be delivered in the end, will go to fund increases in Government debt servicing in 2013 compared to 2012. These funds will be largely remitted to Ireland's new 'best friends' - the Troika and Franklin Templeton funds.

Now, good luck listening to today's Budget 2013 announcements by our Minister for 'Friends' Finance.

15/9/2012: A handy IMF map for Budget 2013?

The elephant in the room (at 9% of GDP or 11% of GNP, with pensions - at 10.6% GDP or 13 of GNP, that's right more than one euro in eight) - courtesy of the IMF: