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.
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.
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.
