19/7/2013: Ireland: Six Points on Government Spending Stats for Q1 2013

Four key trends in Irish Government expenditure through Q1 2013:

Chart above shows three aspects of Irish Government spending:

1. Overall, expenditure continues to outstrip revenues, generating deficits well in excess of the target and accelerating in Q1 2013 once again, although part of this acceleration is seasonal and part is riven by the IBRC shut-down cost (see my earlier post on this: http://trueeconomics.blogspot.ie/2013/07/1872013-irelands-government-deficit.html)
2. Decline in Government spending since Q1 2009 has been much shallower, once we strip out banks measures than at the aggregate level. This highlights the nature of our fiscal statistics reporting, whereby there is not a single full database (by either the Department of Finance, or CSO) which actually provides clear accounting for ex-banks spending. Question is: why? The IMF this week praised Irish Government for delivering on fiscal transparency. Yet, the very same Government continues to cherry-pick data to show desired effects. 
3. Q1 2009-Q1 2013, overall reduction in gross public spending ex-banks, based on Q1 figures alone (so a caveat here) is closer to EUR470 million or 2.67%. Meanwhile, tax and social security contribution revenues are up EUR979 million or 9.2%. And this disregards the fact that much of the expenditure reductions came from higher charges on private users of public services, not an actual budget cut to budget-covered institutions.

Chart above shows breakdown of the expenditure for four main lines of spending:

1. Compensation of employees has declined 7.53% on Q1 2009 (saving EUR390 million). We were promised billions in savings here and we have attained… well sort of short of that. 
2. Use of goods and services (gross of taxes payable) declined 37.47% or EUR1.01 billion, with parts of these savings now arising due to timing issues. Bunching in spending on this line has increased from 2009 through 2012. Q1-Q2 quarter on quarter changes used to be negative (higher spending in Q1 than in Q2) in 2009 and 2010 and they are now positive for 2011 and 2012. Swing in the rate of change q/q between Q1-Q2 2009 and 2012 was from -13.2% to +10.4%. Which neatly summarises the austerity we've been living through: taxes massively up, capital spending massively down, current spending… err… 'don't ask-don't tell'

One of the worrying trends in the overall expenditure, however, is the interest on our debt. Chart above shows its evolution over time and a clear trend up and up even as taxes are continuing to rise. Now, I know it is trendy nowadays to say 'debt don't matter'… actually, when 20% of your tax revenue goes to pay interest on it… err… it sort of obviously does.

2/8/2012: Irish Exchequer Fog: Reality Isolated?

Let’s take a look at the Exchequer numbers for January-July period out today.

Tax revenue shows an increase from €18,633 mln in January-July 2011 to €20,313mln in same period 2012. 

This is primarily accounted for by increases in Income Tax (which are running pretty much in line almost exactly with what the USC reclassification would have yielded). The Department states that "Income tax is €159 million (2.0%) ahead cumulatively and is over 11% up on the same period last year on an adjusted basis. This is a strong performance." However, as far as I can understand the numbers, the adjustment only includes PRSI and does not cover reclassification of the entire USC (Health Levy). Which suggests that even 2% might be questionable. Per April note (link here) PRSI reclassification was 'estimated' by the department to run €300 million in 2012. It could be, in the end, 280mln or 330mln - take our guess, but it is significant.

Another 'major' factor is a rise in corporation tax of some €400 million of which more than half is accounted for by carry-over of tax from 2011 into 2012, not new tax receipts. Here's the Department note from April (linked above): "The Department is also taking this opportunity to adjust the corporation tax profile for the €251 million in receipts which were  expected in December 2011 but were  only received into the Exchequer account in January 2012". So setting aside timings of the corporation tax and netting out €251 million of carry-over, how much is corporate tax really up? The answer is - we do not know. But not by much enough to be excited about this.

There was a €200 mln odd rise in VAT - the real impact of the Budget 2012. Which means that on the net, there are very few real increases in revenues. Total taxes went up by €1,680mln odd, but on a real comparable basis, they went up less than €1,254mln over seven months! Again, this is before we clarify what exactly happened with the Health Levy. With Health Levy effects, the impact would have been probably closer to €250mln (I am using here 2009 figures for Health Levy and PRSI to estimate).

Non-tax income rose from €1,545mln to €2,355mln – of which almost €300mln is accounted for by increased revenues by the Central Bank and another €200mln odd is from the stronger receipts on the Banks Guarantee. There was €300mln interest on Contingent Capital Notes - also from banks. Sort-of the zombie giving back odd €800mln to the town it is killing. This is the 'reforms' the Government instituted to correct for the fiscal imbalances? Not quite: earlier this year the EU warned Ireland to not consider these 'revenues' as a part of long-term adjustment as they are bound to disappear in time.

Voted Current Expenditure – the stuff that this Government is supposedly cutting back – has actually increased – from €24.008bn in 2011 to €24.563bn in 2012.

Non-voted current expenditure is up more than €2 billion: from €3.556bn in 2011 to €5.573bn in 2012 – primarily driven by increases in the cost of servicing Ireland’s debt from €2.426bn in 2011 to €3.801bn in 2012. Timing effect on sinking fund contribution of €646mln also put a dent.

This means total current expenditure rose (not fell) from €27,564mln in 2011 to €30,136mln in 2012. This is very poor performance, folks.

Thus, current account deficit also increased in January-July 2012 from €7,386mln to €7,468mln.

Sinking fund transfer debit above was offset by credit to the capital receipts, which has meant that capital-related exchequer receipts rose to €1.454bn in 2012 compared to €789.9mln in 2011. Again, there is nothing miraculous here – the state simply transferred funds from one pocket to the other.

On the capital expenditure side, however, there are – on the surface – huge ‘savings’ year on year. Total capital spending amounted to €12,298mln in January-July 2011, but that was ‘cut’ to €3,112mln in same period 2012.

How were such miraculous savings achieved? Well, simple, really. In 2011 the state spent €10,655mln on “Non-Voted (Expenditure charged under particular legislation)” items and in 2012 this line of spending was only €1,775mln. 99% of these expenditures in both 2011 and 2012 relate to banks recapitalizations (and in 2012 added insurance fund support loan of €449.75mln). So the entire savings delivered by the Government amount to putting less money into Irish banks recapitalizations.

Here’s the summary of these ‘savings’.

TABLE

But wait, things are even worse! In 2011 Irish Government paid down the promissory note to the Anglo-Irish Bank in the amount of €3.085bn. This increased Government spending in that year. This year, the Government had converted the note into Government debt, and thus got to claim that there was no payment made, so instead of €3.085bn in spending, the State registered just the cost of conversion €25mln this time around.

All in, of the entire deficit reduction claimed by the media, full €8.9 billion of the ‘savings’ are simply what the Irish Government (rightly) claimed a year ago to be ‘temporary’ one-off measures. In other words, there is no reduction in deficit via expenditure side.

Let's do one final exercise: if we subtract one-off measures from the capital side, total - current and capital accounts exchequer deficit in the first seven months of 2011 was €8.24bn, in the same period of 2012 it is €7.35bn adding to it the reclassification measures and corporate tax carry over implies like-for-like deficit in 2012 of €7.78bn. Which means 'savings' of ca €426mln. 

Of these €306mln is accounted for by timing differences and cuts to voted capital spending which the Government is going to more than undo using the latest 'off-balancesheet' stimulus. And an unknown amount is due to Health Levy reclassification, let's say ca €250mln so far (an under-estimate for 2009 figures, but...) for which the Department does not appear to adjust the numbers. All in, Irish Exchequer finances have most likely deteriorated on comparable terms by around €80million in 7 months through July 2012 compared to 2011.

These are then the colossal savings that the headlines like "Ireland Cuts Deficit in Half" simply mis-represent.


Update: Someone highlighted that the Health Levy was incorporated into the PRSI receipts. My view of the Health Levy is based on this document.

27/7/2012: Ireland's Institutional Accounts Q1 2012

Some positive news on the economy front: Q1 2012 Non-Financial Quarterly Institutional Accounts are out today from CSO (link) and headline numbers showing no significant deterioration and even improvements in areas that do matter, except for the one that matters most to Government plans for the future.

The text below mostly quotes from CSO release linked above, with my comments in italics:

Point 1: The gross disposable income of households was €21,986m in Q1 2012 – an increase of €771m or 3.6% y/y.

This was driven by wages rising by +€170m and profits increases for the self employed of +€365m. Lower interest repayments on loans of -€272m further increased gross disposable income.

Point 2: Household expenditure fell marginally by €9m in Q1 2012 compared to Q1 2011 to €19,361m.

Point 3: Points 1 and 2 above mean that gross household savings increased from €2,439m in Q1 2011 to €3,209 in Q1 2012. The gross savings ratio, which expresses savings increased from 11.2% of gross disposable income in Q1 2011 to 14.2% in Q1 2012. Meanwhile, consumption of fixed capital by households fell from €1,056m in Q1 2011 to €1,037m in Q1 2012, and overall deficit in capital account for the households was shallower at -€154m in Q1 2012 as opposed to -€296m a year ago. This suggests that while deleveraging is still on-going, the rate of capital paydown has slowed slightly. In other words, households have slowed deleveraging and potentially increased capital acquisition. Albeit both effects are very small, these are welcome, if confirmed.

Point 4: An increase in current taxes of €673m between Q1 2011 and Q1 2012 was slightly offset by a fall of €312m in social contributions over the same period, resulting in an increase of €361m in the resources side of the government account.

Point 5: On the uses side of the account social benefits paid by government increased by €289m.

Point 6: Combining Points 4 and 5, the government savings deficit (resources less uses) showed an improvement of €125m – up from -€3,700m in Q1 2011 to -€3,575 in Q1 2012.

Point 7: When account is taken of investment and capital transfers, the net borrowing of the government sector amounted to €4,182m in Q1 2012 compared with €4,489m in Q1 2011.

Point 8: combining Points 4-7: in the nutshell, taxes went up faster than spending went up and voila we are ‘doing less worse’.

Point 9: A major bit: the rest of the world recorded a surplus of €994m with Ireland in Q1 2012 so that Ireland recorded a current account deficit with the rest of the world compared with a surplus of €1910m in Q1 2011. A swing of €2,904m in the wrong direction. Recall that per economics gurus of Green Jersey type, current account surpluses are the only hope for Ireland’s recovery. Oops…

17/06/2011: Irish Exchequer Expenditure - May

A late catching up on the recent Exchequer figures for May. In the earlier post (here) I covered receipts side of the figures. Now, time to update the expenditure side as well. I was reluctant to write much about expenditure and revenue sides of the fiscal crisis in previous months, since early months show very little in terms of comparatives. By the end of May, however, almost 1.2 a year has gone by and some trends can be established, albeit of course with caution.

Total net spending by the Government for January-May 2011 was €18.364bn up on €17.867bn for the same period in 2010. Overall, spending fell 3.67% on the same period for 2008 (€699.5mln saved) but is up 2.78% on 2010 (dis-savings of €497.3mln).

This is not encouraging.
As chart above shows, the expenditure is now running between 2010 and 2008 levels. Sounds ok? Not really. Ireland will have to cut another ca 6% (based on rather rosy plans set out by the Troika back in November) in years to come. So far, we only managed to cut 3.67% relative to 2008 after three ‘savage cuts’ budgets.

The reason is that our 'cuts' were not really that deep, per se, but that they were transfers of expenditure from the capital side and some departmental current spending to Social Protection and Education & Skills. Here are two charts:


Here are some relative slippages (bear in mind that departments responsibilities and names have changed since 2008):
Social Protection spending rose 47.33% over the same period.

These were offset by above average (simple average of -20.69% decline across all departments) declines in spending levels in:

• Tourism, Culture and Sport – down 49.58%;
• Community, Equality & Gaeltacht – down 48.77%;
• Enterprise, Trade & Innovation – down 45.58%
• Environment, Community & Local Government – down 52.24%
• Foreign Affairs – down 28.93%
• Transport, Tourism and Sport – down 56.56%
  

Below average declines took place in:

• Agriculture, Fisheries and Food department spending declined 7.49% in January-May 2011 compared to the same period of 2008;
• Comms, Energy and Nat Resources – down 13.34%;
• Defence – down 15.69%;
• Education & Skills – down just 2.52%;
• Finance – down 17.925;
• Health & Children – down 1.75;
  

• Justice & Equality – down 15.525;
• Taoiseach’s – down 1.75%

Large fraction of these reductions is explained by the capital cuts (a subject for my future post) and by the timing of expenditure (we do not know if payments lags are rising in the public sector or not, and we do not know if capital spending is being delayed to generate positive news momentum).

But it is worth noting that some of the departments show deterioration in performance on the expenditure side relative to 2009-2010 (as opposed to 2008) base. Again, some of these are due to re-arranging of the departmental responsibilities, but in the end, what matters is that to-date, through the first 5 months of the year, Irish Exchequer expenditure cuts and tax increases have yielded just €699.5mln in savings on the 2008 levels.

Furthermore, we should note that promissory notes paid out to the banks in March are not factored into the overall voted expenditure, so the comparatives on the spending side are clearly showing that fiscal consolidation is not working so far. Which brings us to the following ‘rumour’ I heard from a senior governing coalition member. Allegedly, all indications are, Budget 2012 will be, to quote my source, “so bad, it’ll push thousands currently at the margin of leaving the country into booking their tickets out of Ireland this side of June 2012”. And this was in relation to the tax burden measures.

So lastly, lets take a look at year-on-year savings generated by all the austerity measures. The chart below shows that:

1. Savings generated earlier in the year in 2010 were driven primarily by the delays in payments and other temporary measures. Having started at a robust saving of 12.95% in January 2010, the Ex chequer allowed slippage of cuts to net a miserably low rate of overall expenditure reductions of just 1.55% for the year.
2. Both, in 2009 and 2010, by May, Exchequer spending was either contracting of rising at a much slower pace year on year.
3. The pattern for expenditure this time around – in 2011 – is strikingly different from that in either 2010 or 2009.
   

06/01/2011: Exchequer Returns - part 3

In parts 1 and 2 (here and here) I've dealt with some longer term issues relating to the general Exchequer performance figures. In the following two posts I will update specific expenditure (current post) and tax receipts (next post) data.

First, total expenditure:
Two things worth noting here:

• Up until November, total spending side of Exchequer returns was performing relatively strongly, with year on year savings of 4.22%. These savings were significantly reduced in December, with full year savings performance of just 1.55% on 2009.
• The reductions in 2010 have been achieved solely on the back of capital expenditure cuts. Year on year, current spending rose by €261mln or 0.6% in 2010, while capital spending was cut by 14.3% or €990mln
  

You can see the dynamics of reductions over the year in the following two charts:
Combined savings by each department head per quarter end:
Feel free to interpret the above, but what interested me much more is just how stable are the Government's spending priorities over time. To see this, I plotted annual shares of each department head as a percentage of total spend (note - this exercise is not a perfect comparison as departments' responsibilities have changed over time).
The chart above suggests strongly to me that the Government, despite all the criticism it deserves in managing the crisis, has so far elected to cut largely discretionary spending. This is a rational response to the early stages of the crisis, but it is clearly insufficient to deliver stabilization of public finances, let alone their restoration to health.

06/01/2011: Exchequer Returns - Part 2

In Part 1 (here) I raised couple of specific points concerning the latest official claims over Irish Exchequer returns for December. Here, I follow up on the first point raised earlier and then post on longer term trends in Government spending, including my forecasts for fiscal performance in 2011-2014.

First, relating to the point raised in yesterday's post: Minister Lenihan stated that
"On the spending side, overall net voted expenditure at €46.4 billion was over €700 million below the level recorded in 2009, reflecting the ongoing tight control of public spending. While day-to-day spending was marginally ahead of target in the year, this is due to a shortfall in Departmental receipts rather than overruns in spending."

As I outlined earlier, I beg to disagree with the Minister on the claim of 'tight control'. Let me add to the reasons for my disagreement:

• The Exchequer Returns show that the Government had an overall budget deficit of €18,745m in 2010,
  
• On the surface, this appears to be ,896m lower than the deficit in 2009, which stood at €24,641m.
  
• However, deficit 2009 included a €3bn payment to the National Pensions Reserve Fund as part of the banks recapitalization plus a €4bn re-capitalization injection into Anglo Irish Bank
  
• Deficit 2010 does not include bank recapitalization measures.

This implies that the Exchequer deficit was:

• 2010 = €18,745m
• 2009 = €17,641m

And thus Minister Lenihan's tightly controlled public spending measures in 2010 have managed to increase Government deficit by €1,104m on 2009 levels.


Next, let's take a look at the annual data for Irish Exchequer over the recent years, incorporating latest release.

First, receipts v expenditure over time - for 1983-2011 and on with my forecasts. All data is annual:
Notice that with exception of 3 points - all observations fall to the right and below the 45 degree blue line. Also notice that the trend over time has been toward greater excess expenditure. Overall, however, 'when I have it, I spend it' relationship really does hold - the RSq is high 0.9413.

Latest figures show that in 2010 the Government has savaged capital investment side of its balancesheet and failed to curb current spending. This too is consistent with long term trends:
The age of Brian Cowen 'stimulus' (remember - he did say that we are going to have recession stimulus in the form of large capital investment) is now over and, despite Minister Lenihan's claims that we are not in the 1980s... guess what - 2010 we landed right into pre-1989 era.

Lastly, on to forecasts for the future:
Above chart clearly shows why I am with the IMF on the deficit outlook for 2014, and not with the Government. Apart from slightly higher total expenditure outlook than that of DofF, I expect slightly lower tax take and non-tax returns, but then I also expect the remaining costs of banks and subsequent increased interest repayment burdens to come due in 2011-2014 as well.

Economics 4/10/10: Exchequer Expenditure for September

Exchequer expenditure in details.

Starting from the top, the same picture as in August remains true - capital spending cuts drive overall performance on expenditure side, while current spending cuts are extremely shallow:
Notice also that both cuts are getting shallower as the year progresses. In months ahead, delayed payments to contractors will have to be settled, implying that it is likely that current spending is going to break the contraction cycle by the year end, while capital side savings are going to get shallower. It is, therefore, highly unlikely that overall year on year performance in terms of Exchequer spending will post a decline greater than 2% of overall spending in the end.

Detailed expenditure by department, year on year:
So where's the money being spent?
And how does it compare to the DofF targets?
Again, let's exclude capital spending and focus on current spending:

So for all the hoopla about draconian cuts and great courage of our public sector (remember, the Croke Park agreement claimed that €3 billion has been cut out of public sector wages alone), we have saved (January-September 2010) a miserly €1,562 million. Oh, about 5 weeks worth of our state borrowing so far or 3 weeks of our borrowing year to date. But even that number conceals the truth. Year on year, just €156mln - miserly number indeed - was cut out of current expenditure. That's right, folks, for the state that borrowed €16 billion this year so far, we managed to save less than 1/2 a week worth of what we issued in fresh bonds since January 1.

Put this into Croke Numbers perspective, at the rate things go, it will take 19.2 years for us to reach the magic 3 billion in savings number cited by the Bearded Ones.

Economics 2/9/10: Exchequer results - expenditure

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.