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.

03/03/2011: Exchequer sums gone wrong in stockbrokers' calculator?

Amended

I did not want to blog about Exchequer receipts and expenditure, primarily because the information that can be derived from two monthly returns is really not that significant. Q1 returns for March will be much more revealing of any emerging ‘trends’.

But then I came the across note from one of our stockbrokers - perhaps one of the poorest in quality I’ve seen in some time. Let me tackle the spin and errors that were presented as analysis.

“Tax revenues at end-February were €4.84bn, 2.2% higher than the same period in 2010 but €128 behind the government tax projections for this stage of the year.” So far – true.
“The shortfall was concentrated in value added tax receipts which were €120m behind expectations. This weakness raises concerns about the strength of consumer spending in 2011.” This ‘weakness' is 2 months in running – what concerns can be raised on the basis of such a short observation span and given seasonality and lags in payments – is open to doubt, but let's use the note own logic in my response.

“Income tax and corporation tax receipts were €45m and €23m behind but were partly offset by higher than expected excise duties.” Ok again – sticking to the numbers computed for them by the DofF seems to work for these folks.

“Overall tax revenue remains broadly on track to meet the government's targets”. Oh, really? Let’s recap the above: Income tax is 2.237% below target, Vat is 5.894% behind target, Corporate tax is 17.829% behind target. So 1st, 2nd and 4th largest tax heads are behind target appreciably. Tax receipts overall were 2.21% ahead of 2010, but 2.5765% behind the target. If that ‘broadly on target’ performance were to continue through the year, so we will be losing 2.56% off the target every 2 months, cumulative shortfall on target will be 14.5% for the year or a whooping 5,060.5 billion (I am, of course, using the very same logic that led this analyst to draw a conclusion about the VAT receipts above). Some ‘on track’ that is.

And then arrives tour de force - the breakdown of someone's copying abilities:
“Tax measures introduced in Budget 2011 including the new universal social charge had an impact for the first time on the February receipts. Income tax receipts were 25% higher than in the corresponding month of 2010, albeit slightly behind the expected target for this stage of the year.”
Here comes a sticky: income tax receipts were 1,835mln through February 2010, they were 1,967mln through February 2011 – which makes them 7.2175% above yoy not 25%. The most bizarre thing is that the DofF note provides correct (7.2%) figure.

The mystery of 25% was explained to me by the analyst overnight. It was NET February income tax receipt that rose 25% yoy, not the cumulative tax receipts reported by the DofF. Net February 2011 receipts were €980mln as opposed to €784mln in February 2010. Of course, the note did not mention that this 'achievement' was due to the inclusion of the Universal Social Charge into the February 2011 figures. Here is how the DofF itself described the situation:
"PAYE receipts in the month of February amounted to €676 million, some €38 million or 6% up year-on-year. While PAYE receipts in February show the impact of the income tax measures introduced in Budget 2011, they do not include receipts from the USC and therefore allow for a comparable year-on-year analysis to be made."

What's missing in the above is the fact (stated elsewhere by the DofF, but again omitted by the analyst) that 2011 Income Tax Receipts include Health Levy that previously was not counted in the income tax. Here is from the Exchequer note for January 2011:
"The forecast growth rate in tax revenues for the year as a whole is 9.9%. This is driven by two significant factors: (i) The reclassification of health levy receipts, which heretofore had been collected as a Departmental receipt paid directly to the Department of Health & Children, to form part of the new Universal Social Charge, to be collected as part of income tax, and (ii) The large Budget day tax raising package, primarily on income tax, of €1.1 billion."

So 25% figure, while not in itself a bogus one, does not support any sort of a conclusion to be drawn about year on year comparatives, unless we net out health levy equivalent receipts.

However, the conclusion that can and should be drawn (downplayed by the DofF) is that PAYE receipts are growing at 6% and that after a significant shrinking of the tax bands.

Now, let's compare the dynamics of the current structure income tax to-date, cumulative through February 2011 to the target. By end of February 2010 Irish exchequer netted 16.27% of its annual income tax revenue. If the same share is applied to 2011 receipts through February 2011, the annual receipts for 2011 will fall somewhere around 12,087mln or a massive 14.43% below the target set for the year (14,125mln) for the income tax.

Let's, however, recall that January returns did not reflect USC inclusion as the returns related to December 2010 incomes. Correcting for this - take DofF forecast for total income tax measures of €1,100mln in 2011 and take out the share of January-February from these, adding them to the 2-months receipts attained and then extrapolating into the rest of the year. Cumulative income tax shortfall on the target then is 6.22% for the full year 2011 or €879mln. Not good.

So

• comparing likes with likes (2011 structure with 2011 structure) - you get a shortfall,
  
• comparing PAYE to PAYE (2010- v 2011) you get month on month rise of 6%,
• comparing 2-months in 2011 (with health levy in) against 2 months in 2010 (with no health levy in it) gives a rise of 7.2%
• BUT, comparing the analyst's basket of apples and oranges to a basket of apples alone (2011 February income tax with USC in it against a 2010 February income tax absent USC) gives a 25% rise

Of course, the latter can be billed as some sort of a net positive for the Exchequer...

Here is the table of calculations:

09/01/2011: Exchequer returns - Part 6

This is the sixth post on Exchequer returns for 2010 (previous parts are here: part 1, part 2, part 3, part 4 and part 5).

This time around, I am going to take a closer look at the incidence of taxation across various tax heads and agents of economy.

During the year, I have been consistently highlighting the problem of rising burden of taxation for the households - the core agency of any economy. In particular, the rising burden of income taxation. Here are two charts - one comparing 2007-2010 at H1 end and another comparing same years at year end:

Table below summarizes:
Interestingly, Minister Lenihan in his address relating to the release of December returns has gone out of his way to highlight two things:

• Increase in corporate tax returns, and
• Decrease in income tax returns

Minister Lenihan would be better served if he were to look at the 2007-2010 comparatives, which clearly show that his Government's policies have shifted massive new burden for carrying public expenditure onto the shoulders of ever-shrinking (remember latest Live Register results?) pool of working households. At the same time, corporate tax contributions to overall tax receipts have declined on 2007 (albeit insignificantly).

Let's highlight this for him, taking into account that both businesses and households are paying more than just corporate and income taxes:

No comment needed!

09/01/2011: Exchequer returns - Part 5

In a follow up to the previous 4 posts on Exchequer returns (part 1, part 2, part 3 and part 4), let me update my own earlier charts on receipts to cover 2007-2010 horizon. There are some striking comparatives to had out of these.

First by tax head:

Now, totals
And now, let's carry out two exercises. First, consider changes year on year and over 2007-2010 horizon:
The second exercise is in the bottom section of the table above. Suppose we fix tax revenues at the levels of 2007 (case 1) and at 85% of 2007 (case 2) levels. The choice for 85% is warranted as it roughly speaking represents a 50% moderation in housing price growth activity on 2005-2007 - not a housing recession, but slower rate of growth. In other words, this is equilibrium effect. What would have been the Exchequer shortfall in funding given the path of expenditure taken by the Government over 2007-2010?

As shown above, between 2008 and 2010 the Government would have to cut expenditure by some €10.3 billion in order to bring fiscal balance to the receipts fixed annually at 85% of 2007 levels. And these are net cuts! Alternatively, only €13 billion of the total cumulative 2008-2010 deficits of €49.1 billion can be accounted for by a decline in tax revenue below equilibrium level. The rest, my friends, is due to over-spending...

08/01/2011: Exchequer returns - part 4

Corrected - hat tip for an error to Seamus Coffey.


In Part 1 of the post on 2010 Exchequer returns I looked at a couple of headline points relating to the issue of Ireland's fiscal policy performance in 2010 (here). Part 2 of the post dealt with my forecasts and longer term analysis of fiscal environment in Ireland (here). Part 3 focused on the expenditure side of the Government balancesheet (here).

In this part, let's tackle the issues relating to tax receipts.

Again, the main headline picture first:

As the chart above clearly shows, the idea of 'stabilizing' tax revenue relates to the Government view that replicating previous year performance - albeit at a slightly lower levels - is somehow a good thing.

Amazingly, 2010 absolute underperformance of the already abysmal 2009 comes after a host of tax hikes and levies introductions by the Budgets 2009 and 2010. Minister Lenihan has been pushing ever increasing tax burden onto the Irish economy, while getting less and less revenue in return.

Relative to 2009 and 2008:

• Income tax was down 4.72% and 14.43% respectively
• VAT is down 5.33% and 24.79% respectively
• Corporate tax - the one Minister Lenihan has been singing praises about this week - is up 0.606% on 2009, but down a massive 22.55% on 2008

Here are few charts by main tax heads:

Of course, given investment and housing markets performance, stamps, CGT, CAT etc are showing continued strain as well:

Of course, CGT is a reflection of economy's performance on investment side. Here, there is clearly no recovery in sight.

Dynamics year on year:

All of which means that year on year performance is now 'stabilizing' around 2009 dynamics. Again, one might say the glass is 1/10th full (things are not getting much worse than 2009) or 9/10ths empty (things are not getting any better).

One thing that remains stable throughout the crisis is Government's determination to load the burden of fiscal adjustment onto ordinary taxpayers:

Table below summarizes the above point:

And, for conclusion, let's indulge in the Government's own fetish of focusing on performance relative to target (not that there is much of an economic meaning to this):

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.