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Showing posts with label Exchequer deficit. Show all posts
Showing posts with label Exchequer deficit. Show all posts
As you know, I prefer not to blog extensively on economics matters over the weekend. However, due to work time constraints this week, I have accumulated lots of interesting material that requires some catch up blogging... so here are some new posts on economics matters...
First up: an interesting chart summarising neatly the problem of Irish fiscal consolidations to-date and the reasons why we are not out of the woods yet.
The above plots structural deficits in the EU (in other words the deficits that would have prevailed if the economy was not in a cyclical recession or downturn), as estimated by the EU Commission. Less questionable are those deficits derived using the IMF methodology:
According to IMF estimates, Ireland's structural deficits are the fourth largest in the EU and are second highest amongst the 'peripheral' states.
For comparative, consider also the primary deficits (removing the cost of interest on government debt):
Ireland is the worst performer in 2013 in the EU (this might improve to the second worst given reclassification of EUR700 million in licenses sales from 2012 into 2013). Notice that Greece is already running primary surplus, while Italy is close to doing so.
The above clearly shows that the Exchequer in Ireland is far from achieving sustainable deficits trajectory and that any claims that Ireland is close to completing fiscal adjustment required to restore its public finances to health should be subject to serious reservations.
Exchequer returns pose no surprise - and none were expected, given this is just January - so no point of updating the detailed data sets.
Some top figures.
On tax receipts:
Income tax revenues are up at €1,260mln in January 2012 over €987mln in January 2011 as USC kicks in full tilt this year.
VAT is at +3% yoy to €1,725mln in part boosted by small gains in sales over Christmas period in terms of volumes.
Corporation tax is up to €271mln from €72mln a year ago, but €250mln of this was due to delayed receipts from December 2011, so in reality, Corpo is down on 2011.
None of the above are really significant as timing might have been a factor in all of these. It will take through March to see the real changes in the underlying numbers.
Exchequer deficit is at €393.7mln down from €483.2mln a year ago. So now, deduct that €250mln from the receipts side and you get Exchequer deficit at €643.7mln or some €160mln ahead of January 2011. Not pretty, eh?
Of course, as I said above, there is no point of doing any analysis on returns for just one month, so take the above comment with a huge grain of salt.
In the previous post we looked at the Exchequer receipts. Now, let's take on Exchequer deficit.
Based on data through November 2011, Exchequer deficit stands at €21.37bn in 2011 against the same period 2010 deficit of €13.35bn. However, netting out banks recapitalizations and the sale of stake in BofI, Exchequer deficit on comparable basis was €11.72bn in 11 months of 2011 or €1.63bn below that in 2010.
Factoring in the pensions levy (temporary measure), savings to-date amount to €1.18bn on 2010 period.
Anti-climatic? You bet. Chart below breaks down the 'savings' achieved, with data reported for annualized rate of spend based on January-November 2011 receipts. Voted current expenditure for 2011 rose from €36.39bn in 2010 to €37.59bn in 2011 (data through November for both). Voted capital spending fell from €4.26bn in 2010 to €3.08bn in 2011 (again, data through November). So all of the above 'savings' come from tax increases and capital cuts. Again, when it comes to current spending (Government services), there is no austerity on the aggregate. In fact, there is ever-increasing profligacy. Once again, keep in mind, this does not mean there is no pain. It's just that the pain we have is really in the form of robbing Peter to pay Paul.
With Exchequer results for September (see earlier posts on the details of tax returns and tax burden), here's the update on overall Exchequer deficit for nine months through September 2011.
Overall 2011 Exchequer deficit currently stands at €20.66bn with ex-banks deficit at €12.31bn, implying net reduction in deficit ex-banks of €1.069bn on 2010 levels and absent pensions levy / expropriation 'measure', the deficit reduction achieved through September is now just €612mln.
This hardly represents a significant drop in our overall fiscal imbalances. Cumulative deficits for 2008-present are now at €76.76bn or €42,146 per each employed person or €54,990 per each full-time employed person in Ireland (per Q2 2011 QNHS numbers, not counting Nama debts, Government promisory notes and interest on these soon to be due).
So a run-of-the-mill family of 2 full-time employed workers is now facing, on top of massive mortgage and Government-monopolized/regulated utilities and services bills, plus gargantuan costs of childcare, education, and health care, an additional debt pile of €109,000 on average, courtesy of the serial failure of the state to control its own spending habits.
As the 'Green Jersey' crowd would say: "It's all sustainable" cause 'exports will save us' and we have 'jobs programmes' alongside 'homes retrofitting'/'windmills-potential' economy. Sure...
Staying on the topic of Exchequer performance - the theme is (see earlier post here) "The dead can't dance". This, of course, refers to our flat-lined economy and the ability of the Government to extract revenue out of collapsing household incomes, wealth and dwindling number of solvent domestic companies.
Let us now briefly cover the remaining parts of the Exchequer equation: spending and overall balance position.
Overall, the Exchequer deficit at end-July 2011 was €18.894bn compared to a deficit of €10.189bn in the first seven months of 2010. The increase reflects a number of things.
The Government has issued back in March this year some €3.085bn worth of bank promisory notes to the larks of Irish banking: Anglo, INBS and EBS, all of which have since ceased to exist. On top of that the Government showered some €5.241bn of taxpaers cash onto the elephants of the Irish banking system: AIB (the Grandpa Zombie) and BofI (the Zombie-Light). To top things up, the Exchequer pushed some €2.3 billion of taxpayers funds into IL&P (the msot recent addition to the Zombies Club).
Controlling for banks measures, 2011 deficit through July stands at €8.241bn which represents savings of €1.449bn on same period of 2010. So, now recall - tax receipts went up by €1.48bn in total. Ex-banks deficit shrunk by €1.45bn in total... which, of course, strongly suggests that the "Exchequer stabilisation" so much lauded by our Government was achieved largely not due to some dramatic reforms or austerity, but due to old-fashioned raid on taxpayers' pockets.
Aptly, folks, austerity is not to be found in the aggregate figures. Per DofF own statement, "total net voted expenditure at end-July, at €25.7 billion, was €224 million or 0.9% up year-on-year. Net voted current spending was up €813 million or 3.5% but net voted capital expenditure was €589 million or 26.4% down. Adjusting for the reclassification of health levy receipts to form part of the USC which has the effect of increasing net voted expenditure, it is estimated that total net voted expenditure fell 2.6% year-on-year." Hmm... ok, there seems to be some austerity, but on capital spending side.
The main culprit for this is the continuous rise in Social Protection spending and low single-digit decreases in spending in some other departments. Hence, unadjusted for changed composition:
Communications, Energy and Natural Resources spending declined just 8.1% on 2008 levels for the period January-July 2011
Education and skills - by just 8.2%
Health - by only 4.3%
While Social Protection spending rose 49.7% on 2008 levels and Department of Taoiseach is up 1%.
It is worth noting that lagging in cuts departments account for ca 49.12% of the total spending by the Government, while Social Protection accounts for 30.07%.
We might not want to see the above areas cut severely back, but if we are to tackle the deficit, folks, we simply have to. Why? Because our debt is rising and this debt is fueled largely by the deficit.
And this means that our debt servicing costs are also rising. Total debt servicing expenditure at end-July, including funds used from the Capital Services Redemption Account was just over €3 billion. Per DofF statement, "Excluding the sinking fund payment which had been made by end-July in 2010 but which has not yet been made in 2011, debt servicing costs to end-July 2010 were some €21⁄4 billion. The year-on-year increase in comparative total debt servicing expenditure therefore was €3⁄4 billion." One way or the other, we are paying out some 12% of our total tax receipts in debt interest finance. That is almost double the share of the average household budget that was spent on mortgages interest financing back at the peak of the housing markets craze in December 2006 - (6.667%).
August is a silly season, so forgive me for avoiding digging too deep into silly data. This includes the data on Exchequer spending and tax receipts. They are silly. Why? Because the shambolic rearranging of chairs on the deck of the proverbial Titanic - the so-called reforms of the Departments - has made historical references invalid. We no longer are able to check what the Government is really doing and instead are forced to rely on what the DofF is telling us that the Government is doing.
This means two things for this blog. One, I will still be updating the datasets on spending, but will do this over longer time horizon spans than monthly. And I will still be updating tax receipts figures, which are, at least, more consistent than spending figures.
Here are the latest figures for August.
Total tax revenues for January-July 2011 was €18.633 billion which is €1.48 billion or 8.63% higher than in the same period last year. According to the DofF note, "This year-on-year increase was due primarily to higher income tax receipts, arising from the Budget 2011 measures, including the introduction of the USC. Excise duties, corporation tax, customs duties and stamp duties all recorded year-on-year increases also."
Overall, income tax rose to €7,277mln in 7 months of the year on 5,81mln collected in the same period of 2010 - a 25.1% increase. Again, as mentioned above, this includes USC measures. Income tax receipts are now up 14.5% on same period of 2009 and in fact are ahead of the same period of 2007, but again, this is surely due to transfer of USC.
Sadly, enough, they wouldn't tell us just how much of this increase was organic (out of old tax revenues) and how much due to USC. The note on spending attributes €604mln to USC on the side of the expenditure adjustments. So carrying the same over to tax receipts side implies that non-USC related tax measures in Budget 2011 have lifted tax revenue by €876mln so far in the year or annualized rate of tax increases of ca €1.5 billion. This arithmetic suggests that income tax receipts in Jan-Jul 2011 were around €6,673mln or still below 2008 and 2007 levels.
Adjusting total tax receipts for the above estimate of USC puts total receipts at €18,029 - a level 5.1% ahead of 2010 and 3.53% below 2009 figures. Not exactly a spectacular improvement in the 4th year of the crisis and after 3 years of austerity budgets. And not exactly spectacular improvement given that officially, per our Government claims, we are out of the recession now since Q4 2010.
The Government loves targets, even if the objectives they set are unambitious enough to be able to deliver on them. In this department, we are doing ok. Tax revenues were €263 mln (1.4%) above target. Income tax was €160 mln or 2.2% above target at end-July, but, per DofF own admission, "excluding the beneficial impact of earlier than expected DIRT payments, both in April and July, income tax was a little below target in the first seven months. That said, the underlying performance of income tax in recent months has been encouraging, with the targets for both June and July marginally bettered."
Enough said about targets. Back to data.
Vat came in below 2010 levels at January-July 2011 receipts of €6,399mln against 2010 period receipts of €6,478. The shortfall now stands at 8.07% on 2009 and 1.22% yoy. So as the chart below shows, Vat is trending along the worst year on history - 2010.
Corporate tax revenues were €1,648mln which is a vast improvement of a whooping €23mln (what the Dail spends on expenses, roughly) yoy (+1.42%). Corporation tax is now down 12.57% on same period 2009 which was the best year for this line of tax receipts in 2007-present period.
Excise duties recorded a €101mln (4.05%) surplus in the first seven months of the year relative to 2010, which translates into 0.54% increase on the same period of 2009.
The rest of the tax heads were all over the shop. Stamps improved by 23.9% yoy, but remain marginal and the improvement was due to timing factors. CGT and CAT are both down (and both are extremely marginal in size), suggesting that capital investment in the economy remains on downward trajectory. Customs were up 9.9% yoy - potentially due to increased improting activity in May-June 2011 as MNCs beefed up their stocks of inputs.
So overall picture on tax receipts side suggests:
Extremely poor performance on Vat and capital taxes - implying no domestic consumption or investment pickups;
Lackluster performance on income tax (ex-USC), with receipts stable around 2008-2009 levels
Mediocre performance on corpo tax, despite strong production activity in the MNCs-dominated exporting sectors
Transactions taxes running within 2009-2010 performance readings.
Things are, therefore, stable - in a 'the dead can't dance' way.
Exchequer results are in for June and in the previous two posts I discussed tax receipts (here) and overall distribution of taxation burden across various tax heads (here). In this post, I will be quickly covering Exchequer balance/deficit for H1 2011.
Overall tax and non-tax revenues came in at €16,744.6 million against €15,298 million in H1 2010 with both tax revenues and non-tax receipts on current side coming upside. However, total voted current account expenditure came in at €20,547 million in H1 2011, up on €19,655 million. This hardly amounts to 'austerity' working (more on expenditure analysis in the later blogpost).
Non-voted current expenditure came in at €3,375 billion, similar expenditures for 2010 over the same period were €3,071 million. Banking measures in H1 2011 accounted for €3,085 million against comparable period 2010 official (see below) figure of zero.
Overall, Exchequer deficit for H1 2011 stood at €10,828.5 million against 2010 figure of €8,887 million. Excluding banking measures H1 2011 deficit stood at €7,743, while excluding banking measures accumulated over 2010 and backed-out to June 2010, the ex-banks deficit for H1 2010 was around €7,590. Note - this imperfectly takes into account variable timing for deficit increases due to banks measures.
Here's the chart: Again, I am not seeing any dramatic improvements here on 2010 performance.
It is worth noting - remember that department expenditure will be covered in the later post - that national debt interest and management expenses through H1 2011 have risen to €2,501 million from €2,231 million in H1 2010. Thus interest and debt management cost are currently running at 16.36% of total tax receipts.
Through H1 2011 we have borrowed €11,370 million from EFS, €7,178.5 million from IMF and €3,659.6 from EFSF, so total borrowings rose from €7,589.6 million in H1 2010 to €16,653 million in H1 2011. Of the money we borrowed (at more than 5.8% pa), €10,277.5 million is still held in deposits with Irish banks at, oh, maximum rate of ca 1.4-1.5% (see here) implying an annualized cost of this shambolic support for Irish banks to the Exchequer of ca €450 million - oh, about the amount of money the Government is clawing out of the pensions levy?..
Exchequer receipts are out for June and here are the stats on tax receipts (expenditure and deficit analysis forthcoming later).
Headline figures:
Income tax came in at €6,038 cumulative for January through June 2011, which obviously includes the new USC. There is no point of comparing this against previous years, so I will include a chart only for completeness. So instead - relative to target: income tax came in above the target by €11 million cumulative for 6 months through June, or +0.2% - not exactly a stellar performance by any possible measures.
But here's an interesting bit (illustrated in the chart) inclusive of USC, 2011 income tax for the first 6 months of the year is pretty much matching 2007 income tax for the same period (€5,972 million) which had no USC receipts in it.
VAT surprised on the downside, with receipts at €5,075 million or 8.89% below same period in 2009 and 0.92% below same period in 2010. 2010 first six months yielded receipts of €5,122 million. VAT receipts are now running 2.6% below target or some €134 million short.
Corporation tax receipts continued their fall off the cliff, albeit the distance to the bottom seemed to have shrunk somewhat. January-June 2011 corporate taxes came in at €1,424 million, some 11.55% below 2010 figure of €1,610 and some 24.26% below the same period of 2009. Corporate tax receipts are now €116 million (or 7.6%) behind target.
Excise taxes came in at €2,200 million, up 5.5% yoy and up 2.76% on 2009 period. This means that Excises are now €79 million (3.7%) ahead of target.
Of smaller tax heads:
Stamps are down 5.02% yoy and down 22.97% on 2009. Put things into perspective, in 6 months through June 2007 stamps yielded €1,696.5 million for the Exchequer. In the same period this year - only €265 million, down 84.38%.
Capital taxes: CGT fell to a miserly €90 million down from €114 million in 2010 and from €1,046.1 million in the same period in 2007. That's contraction of 91.4% on 2007 figures.
CAT fell off the cliff (despite QNA showing uplift in fixed capital formation in Q1 2011, suggesting that the uplift had little to do with indigenous investment - taxable - and more to do with MNCs - non-taxable), shrinking to €48 million in H1 2011 down from €131 million in the same period of 2010.
Lastly, Customs came in at €117 million, up 16.3% from €101 million a year ago.
Total tax receipts have therefore increased (again, due to USC) to €15,279 million in H1 2011 from €14,432 million in the same period 2010 (+5.87%), but are down 3.35% on same period of 2009 and are 26.59% below their level in 2007.
Relative to target, Irish Exchequer receipts for H1 2011 are €115 million (0.7%) short of budgetary targets. So no smoking gun there so far, but the risks remain on the downside as economy signals slowdown since May.
Our leadership - from the Minister for Finance to the heads of the Central Bank and various quangoes, to the affiliated leading business figures are keen on pointing the finger for Ireland's troubles at the banks. While the banks are certainly responsible for much of the problems we face, there are other troubles, of an equally pressing nature, that besiege our economy courtesy of the direct decisions taken by the Government.
Exchequer problems ex-banks are a good starting point for taking a closer look at our grave condition.
Irish Exchequer is expected (by the DofF) to bring in some €32 billion in Tax Revenues this year. The Government is expected to spend some €19 billion or 59.4% of the total tax take on its Wages and Pensions bill.
Imagine a household that is paying almost 60 percent of wages earned by those of its members working to purchase household services. Alternatively, imagine a household with a single earner where a person working earns, say €50,000pa and has a spouse who is engaged in full time household work. The implicit cost of such household work (labour alone) to this family, using our Government's metrics, would be €30,000 net of tax.
What would any household do in these circumstances? Of course - send the spouse into workforce and hire substitute services (childcare, cleaning, cooking etc)... What does the Irish state do? It signs a multi-annual agreement with the unions that ensures that the taxpayers will see no reprieve on wages and pensions bills they pay for Public Sector.
Now, let's put things into perspective. 2003 Exchequer Tax Revenues were at the same (nominal) level as the expected revenues this year - €32 billion. Exchequer Pay and Pensions bill was €13 billion or 40.6% of the total tax take.
So between 2003 and today, Irish Exchequer has managed to increase its exposure to public sector pay and pensions costs by a massive 46.2%. In the mean time, due to increased private sector competition (despite such competition being retarded by our regulatory regimes) and continuously improving demographics (younger population and a rising share of population with access to superior foreign public services, such as health - aka the immigrants), the overall public sector responsibilities in terms of services provision have actually declined.
Back to household analogy here - we've got a houseworker in the family who is now armed with newer technology, reducing time and effort input into work, as the cost of such houseworker to the family is rising by almost 50%.
Recap the top-line figures: pay and pensions bills of our sovereign are up 46%. Ex-exports, our domestic economy income is down 34.4% (see here). A country where 1.4 million private sector workers are forced to living beyond our means to pay the wages and pensions for some 470,000 public sector employees?
Mad stuff, but then again, Irish Public Sector is more like a WAG in its expectations of pay and performance, than a Cinderella.
So if there was no miracle happening on the receipts side, what was Minister Lenihan having in mind while drumming about the improvements in the fiscal position? Perhaps it was a dramatic turnaround on the Exchequer spending side?
Let's take a look at the year on year performance across all departments (2 charts below): Looks like all departments are performing well in cutting back spending, save for Social Welfare and the department of Communications, Energy and Natural Resources. However, even a cursory glance suggests that something is amiss. In particular, it is pretty clear that the cuts are primarily happening on the capital side.
What the above charts do not tell us is that there is an interesting dynamic structure emerging to the cuts. This is highlighted in the next chart: Notice the following in the chart above:
Capital spending cuts overall have clearly dominated current spending cuts - for example, in August the ratio of capital spending cuts to current spending cuts stood at -34% for the former and -1.6% for the latter;
Capital spending cuts are finally starting to decline in magnitude, having peaked in June at 36% and having declined to -34% in August. It looks like the state is finally beginning to spend - though still anemically - on the few capital projects it promised to deliver this year.
Current spending cuts became shallower and shallower as the year progressed. In January 2010 current spending was 11.9% below the same period of 2009. In 5 months to May it fell to -5% compared to 5 months to May 2009. In August it is down only 1.6% on the same period of 2009.
Predictably, cuts in the net cumulative voted expenditure are also getting shallower and shallower: So far we are down 5.8% on 2009. But this is not exactly a massive achievement, given the trends underlying cuts to date.
Another problem is that given the Croke Park agreement, there is a clear reason as to why the current spending cuts are getting weaker.
Either way - just as with receipts, I am not seeing any improvements anywhere in these numbers. If anything - Government spending is way too slow to adjust and is adjusting so far in a wrong direction.
From my previous posts on the Exchequer deficits, you have probably guessed that unlike other economists, especially those from the official commentariate, I am not too fond of comparing current receipts to 'targets' set out by DofF. This aversion to focus on how closely the receipts are running relative to targets is driven by two factors:
I don't care for DfoF targets. What matters is how the economy performs in reality, not how closely it resembles someone plans;
I don't think that DofF targets have much meaning - real world deficits have two sides to them: receipts and expenditure. In receipts, tax collections signal the extent of economic activity. And changes in receipts year on year also signal future economic capacity. Full stop. Targets are irrelevant here.
So I've done some homework - manually (because DofF is incapable of delivering usable databases) trolling through Exchequer Statements, and compiling my own database of tax receipts. From now, this will form a stable feature of monthly Exchequer Statements analysis.
Here are some startling revelations from the latest results released on Friday. Income tax receipts are currently running behind all years from 2007 on. This is a clear indication that our income tax policy has collapsed. If in June 2009 income tax receipts were -9.02% below June 2007, by June 2010 this difference has widened to -16.82%. And this is despite (or may be because of) higher taxes imposed in Budgets 2009-2010. Mark my words - should the Government increase income tax rates or shrink income tax deductions in the Budget 2011, this effect will most likely increase once again.
Vat has performed just as poorly so far this year, despite all the parroting going on amongst commentariate about improving retail sales etc. In June last year, Vat receipts were off 23.48% on 2007. This year this difference expanded to -29.63%. And this is despite significant weakening in the Euro and with price wars amongst the retailers. Let me ask Irish banks' economists so eager talking up our consumers' return to the shopping streets.
Corpo tax is doing slightly better so far, but there are timing issues here, plus there is an issue of profits booking by the MNCs - rather spectacular in June 2010. Overall, corporate receipts are subject to a massive uncertainty until November figures come out, so let's wait and see.
Excise taxes are clearly settling into a new equilibrium, way below 2007 and 2008 figures. June 2007-June 2008 the returns on this line were down -26.04%. This year, the decline is -27.97%.
Stamps are next: some spectacular rates of deterioration here. June 2007-June 2009 = -79.72%, to June 2010 = -83.55%. Capital gains tax - should be booming, according to the 'Green Jersey' squads. After all, allegedly we are doing so well now in terms of equity markets that Ireland is having a booming number of millionaires. Remember that claim? Well, CGT shows none of this 'boom' and, of course, QNA shows continuous deterioration in our investment position. So between June 2007 and June 2009, CGT receipts fell 80.98%, by end of June 2010 they declined 89.10%. Surely, things are booming as we roared out of the recession... Almost the same story for Capital Acquisition Tax, with this category performance being only slightly better year to date on the back, potentially, of something really strange going on in the Exchequer own capital spending and automatic stabilizers (timing?).
Customs duties are also down, tracing the trajectory of consumption excises.
So let's take a look at the total receipts: Again, I am failing to see any sort of 'stabilization' in public finances (receipts are running behind 2009 levels), or any significant uplift in economic activity relating to Q1 2010 'exit from the recession'. We apparently had full 6 months of 'recovery' and there's not a blip on the tax receipts radar screen.
So my advice to the 'official IRL economics squad' out there - stop chirping about 'tax heads running close to target'. Look at the actual numbers!
Exchequer statement is out today. As usual, for the sake of the markets and the media - right before the closing of the working day. It's either a pint with friends, a dinner with the family, or dealing with Brian Lenihan's problems. Forgive me, the first two came ahead of the third one.
Mind you, not because Mr Lenihan's problems are getting any lighter. They are not. Second month running, tax receipts are under-performing the target. Sixth month in a row, the only saving grace to the entire shambolic spectacle of 'deficit corrections' is the dubious (in virtue) savaging of capital investment spending.
Let's take a look at the details: there was €80 million shortfall in June tax take. All tax heads receipts came roughly in line with the DofF monthly plans, except for income taxes (off €84 million behind expectations).
To hell with 'expectations', though, look at the reality
Tax receipts dipped below down-sloping long term trend line. Which is seasonally consistent. The deviation from the trend line was small, compared to previous 2 years. These are the good news. Total spending is below the flat trend line and roughly seasonally consistent. Given the scale of capital budget savaging deployed this year, this is not the good news. You see, it appears that the Government has back-loaded capital spending while front-loading capital receipts. If that is true, expect serious explosion (hat tip to PMD) of deficit in Autumn. If not,m and the cuts to capital budgets are running at the real rate observed so far, expect mass-layoffs by late Autumn. Either way - things are not really as good as they appear on the surface (more on this 'capital' effect later).
and back to the receipts: H1 2010 so far, income tax receipts are down €227 million cumulatively. Other tax heads are running €76 million above plan. Vat is actually improving, backed by falling value of the Euro and serious cuts in prices by retailers. There is a tendency to attribute this to 'improved retail sales', but in reality most of this 'improvement' is simply due to better weather and smaller savings margins to be had in Newry. Not exactly a graceful cheering point for Ireland Inc... but let's indulge:
€1 billion cut was applied to the expenditure side. Or so they say... Deficit on current account side is now €8.045 billion, up on 2009 €7.212 billion. Vote capital expenditure is down from €1.844 to €2.870 billion. But, wait, in 2009 (well, after Eurostat caught the Government red-handed mis-classifying things) there was €6.023 billion drain on Exchequer 'capital' side from Nama and the banks. This time around, the Exchequer posted only €500 million worth of banks measures on its balance sheet. Something fishy is going on? You bet. Anglo money are not in the Exchequer figures. At least not in six months to June. So things are looking brilliantly on the upside.
Hmm... but what about Anglo? and AIB? BofI? All the banks cash that flowed since January? Well, for now, this remains off-balance sheet. And, there's missing (we actually spent it last year forward) NPRF contribution. Were these two things to be counted, as they were in 2009, the true extent of cuts, the Government has passed through would be revealed. And, fortunately, we can do this much. Take a look at what our cumulative balance looks like to-date, compared with 2008 and 2009.
First - absent adjustments for the banks:
And now, with banks stuff added in:
Notice how all the improvement in deficit to-date gets eaten up by the banks? Well, this is simply so because when we are talking about the improvement on 2009, we are really comparing apples and oranges. Ex-banks in both years, there is virtually no improvement. Cum-banks both years - there is no improvement. But Minister's statement today compares cum-banks 2009 against ex-banks 2010...
Net voted expenditure by departments is running €141 million below expectations for June. Cumulatively, H1 2010 is below expected Budgetary outlook by some €500 million - 2.3% savings on the Budget 2010. Even more impressively, it is now 6.2% behind 2009, 'saving' us €1.4 billion. Not exactly the amount that gets us out of the budgetary hole we've dug for ourselves, but...
I'd love to stop at this point for a pause to enjoy the warm rays of achievement for Ireland Inc. But I can't - it's all due to cuts in capital spending - running some €609 million below Budget 2010 plan for the first xis months of the year. €400 million plus of this comes out of DofTransport budget. All in, current cuts to capital budget represent whooping 36% reduction on 2009 levels. Surely, this will cost many jobs in a couple of months ahead.
And on the other side of this equation - current spending is actually running ahead of Budget 2010 forecasts (actually made in March 2010, so no - DofF has not improved its forecasting powers, it simply is missing targets closer to its own estimation date). And this is true for the second month in the row. Overall, we are now in excess of forecasts by 0.5% and only 1.9% behind comparable figures for H1 2009.
Last few charts:
Now, keep reminding yourselves - the last chart above does not include banks funding in 2010 to-date... Your final tax bill - will. Get the picture?
So we've turned the corner... err... our economy it is... only to discover that, behind that corner the same tumbleweeds keep on rolling across the Exchequer accounts.
It was worth a wait, folks, and January figures for Exchequer returns have shown that, as predicted, the deterioration in our public finances will continue despite Minister Lenihan's efforts in the Budget 2010.
A chart is worth a thousand words: Tax receipts down on January 2009 by almost 18%. They were down 19% in January 2009 relative to January 2008. Spending, meanwhile, is down 7.5% on January 2009, but... there's always 'but': current expenditure is down by a much lower 5.59% and the slack is picked up by a whooping 21.1% decline in voted capital expenditure (the stuff that is supposed to provide stimulus to our economy through strong public investment programmes). Check out monthly receipts above and spot the odd on - right, there has been an extraordinary increase of ca 50% (or 250 million) in January 2010 capital receipts. This, of course, is thanks to a massive hold-back on public investment programme in 2009.
What's going on? Receipts side is clearly gone into a deep red - all, without an exception - lines of tax revenue have underperformed January 2009. Corporate tax has decreased to a third. Stamps - already miserable performer in 2009 are now 41% down on that. Capital gains also sunk by almost a quarter. Income tax, down a massive 9.72% is the best performer. This is dire, folks!
But expenditure side is also showing some poor performance: Ok, I understand Social Welfare spending increasing 15.76% yoy, but agriculture? ETE is a mixed bag. But, get your thinking going. We are in a recession and in a third year of a fiscal crisis. Over the last two years, we have managed to reduce our spending by a miserable 6.9% or less than 3.4% annualized savings. And that was achieved with a Draconian Budget 2010. what will it take to cut our spending by 25-30% off the peak levels consistent with a structurally balanced budget?
Last picture...
But here is a different way of looking at the expenditure side: Take the entire set of departments and divide them broadly speaking into primary (vital, if you want) and secondary (supportive) in terms of their roles. Guess which group has manged to achieve greater savings (in percentage terms) out of its budget?
Efficiently run Government would require the secondary set of departments to cut by at least 3-4 times the rate of cuts in the essential departments. Under the above, we'd have cuts of up to 60% in the total spending segment of €660million, or effective savings of €392 million more than has been achieved in one month, or roughly €1.8-2 billion in one year.
Not enough to decrease our massive deficit, but...
This blog represents my personal views and is not reflective of the views or opinions held by any company, contractor, client or employer I work for currently or have worked for in the past. These views are not an endorsement to take any action in the markets or of any political position, figures or parties.
This blog represents my personal views and is not reflective of the views or opinions held by any company, contractor, client or employer I work for currently or have worked for in the past. These views are not an endorsement to take any action in the markets or of any political position, figures or parties.
