1/10/18: Irish Times on Enterprise Ireland Venture Capital Programs

Recent article in the Irish Times looks at some of the industry views on entrepreneurship in Ireland and Enterprise Ireland funding programs. Some of the comments included are from myself.

Link: https://www.irishtimes.com/business/innovation/phelan-decries-scattergun-approach-to-seeding-foreign-start-ups-1.3639788.

26/12/2013: Strategy for Growth 2014-2020 - A Fruitcake of Policy?

This is an unedited version of my Sunday Times column from December 22, 2013.


It is a well-known fact that virtually all New Year’s resolutions are based on the commitments adopted and promptly abandoned in the years past. Our Government’s reforms wish lists are no exception. Like an out-of-shape beer guzzler struggling to get out of the pub, our State longs to get fit year after year. Most of the time, nothing comes of it: bombastic reforms announced or committed to quietly slip into oblivion. Smaller parts of resolutions take hold; bigger items get buried in working groups and advisory panels. Thus, over the last decade, we have seen promises of reforms across the domestic sectors, protected professions, pensions and health systems, quangos, social welfare, government funding, tax systems, and so on. Virtually none have been delivered so far.

This week’s Strategy for Growth: 2014-2020 is the latest in the series of Governments’ ‘New Year, New Me’ resolutions. It is a lengthy list of things that have already been promised before. With a sprinkling of fresh thinking added. All of it is based on a strange mixture of pragmatism in fiscal targets, resting on economic forecasts infused with an unfunded but modest optimism. Giddy exuberance in confidence concludes the arrangement: confidence that the reforms which proved un-surmountable under the Troika gaze will be feasible in over the next seven years. The entire exercise promises a lot of reforms, but delivers little when it comes to realistic costings and risk assessments of the promises made.

In brief, the new Strategy is a disappointingly old fruitcake: pretty on the outside, inedible on the inside and full of stale trimmings, held together by the boisterous dose of potent optimism.


On Monday, the National Competitiveness Council unveiled its own version of a roadmap to the proverbial growth curve. The 32-page document on the New Economy contained no less than 65 references to the building and construction sector and 39 instances of references to property sector. No other sector of the economy was accorded such attention.

In the footsteps of NCC, on Tuesday, the Government launched its own multi-annual post-Troika policies roadmap.

The core point of the glossy tome is that Ireland needs a combination of policies to get its economy moving again. No one could have suspected such a radical thought. Majority of the policies listed are of ‘do more of the same’ variety. Some are novel, and a handful would have been even daring, were it not for the nagging suspicion that they represent political non-starters.


The plan has three pillars. Pillar one: fiscal discipline to keep Government debt under control. Pillar two: repairing the credit supply system and the banks. Pillar three: create an economy based on innovation, productivity and exports, and… building and construction. If you find any of this new, you are probably a visitor from Mars.

The document fails to provide any risk analysis in relation to all three pillars. Instead, it fires off pretty specific and hard-set targets and forecasts. Normally, the forecasts reflect the impact of policies being produced. In the Strategy 2014-2020 normality is an inverted concept, so forecasts enable targets that justify proposals.

There are two scenarios considered: the baseline scenario (better described as boisterously optimistic) and the high growth scenario (best described as wildly optimistic). None are backed by an analysis of sources of growth projections. No adverse scenario mentioned.

For the purpose of comparison, based on IMF model, Irish GDP, adjusting for inflation is forecast to expand by less than 12.3 percent between the end of 2013 and the end of 2018. In contrast, Government latest plan projects GDP to grow by over 16.1 percent in the case of high growth scenario. Nominal GDP differences between the high-growth and baseline scenarios amount to just 0.1 percentage points on average per annum. In other words, the distance between boisterous and wild optimism in Government’s outlook for the next seven years of economic growth is negligible.

By 2020 we will regain jobs lost during the crisis. But unemployment will be 8.1 percent under the baseline scenario and 5.9 percent under high-growth projections. Both targets are above the pre-crisis levels of around 4.7 percent. Which means that the Grand Strategy envisions jobs creation to lag behind labour force growth. The only way this can be achieved is by lowering employment to labour force ratio. This, in turn, would require increasing labour force more than increasing employment. In other words, the numbers stack up only if we simultaneously reduce emigration and push people off welfare benefits and into the jobs markets, and do so at the rates in excess of the new jobs creation. How this can be delivered is a mystery, although the Strategy promises more reforms to address these.

We will also transition to a fully balanced budget by 2018, eliminating the need to borrow new funds. Of course, we will still be issuing new debt to roll over old debt that will be maturing. Government debt itself will decline to below 100 percent of GDP by 2019. Per IMF latest estimates released this week, our General Government deficit in 2017-2018 will average around 1.5 percent of GDP and Government debt will end 2018 at around 112.2 percent of GDP. By Governments baseline scenario, we will be running a deficit of 0.25 percent of GDP on average over 2017-2018 and our debt will fall to 104 percent of GDP by the end of 2018. Optimism abounds.

To make these achievements feasible, let alone sustainable, will require drastic reforms far beyond what is detailed in the strategy documents. Instead of detailing these, Strategy for Growth: 2014-2020 leaves the major reforms open to future policy designs by various working groups.

For example, the Government Strategy talks high about the need to ensure sustainability of pensions provision. In an Orwelian language of the Strategy, having expropriated private pension funds before, the Government is now congratulating itself on achieving positive enhancements of the pensions system.

Yet, we all know that the key problems with current pensions system in Ireland are two-fold. One: we have massive under-supply of defined contribution pensions plans in the private sector. Two: we have massive deficits in defined benefit schemes that are predominantly concentrated in the public sectors. The Strategy documents published this week simply ignore the former problem. With respect to the latter one, the Government plan amounts to hoping that the problem will go away over time. Overall, going forward, the magic bullets in the State dealing with the vast pensions crisis are exactly the same as before: higher retirement age, gradual closing of defined benefit schemes and more studies into “setting out … long-term plans in this area”.

Another complex of Augean Stables of economic policies left untouched, potentially due to the influence of Labour is the tax system. Current income and social security taxes de facto penalise anyone considering an entrepreneurial venture. The Strategy puts forward no income tax reforms proposals. The document brags about the ‘progressivity’ of our income tax system and promises to retain this feature of the tax codes. Unions will be happy. Entrepreneurs, self-employed, higher-skilled workers, innovators, professionals, younger and highly educated employees, and exporting sectors workers will remain unhappy.

The Strategy admits that “Traditionally in Ireland starting and growing a business is considered less attractive by many than working in larger employers.” It goes on to stake a bold policy claim “to find innovative ways to encourage an entrepreneurial spirit.”

Stripped of fancy verbiage, the ‘innovative ways’ amount to a call to educate us all, toddlers and pensioners alike, about the goodness of entrepreneurship, and develop unspecified policies to make business failure more acceptable. Given the shambolic nature of the personal insolvency regime reforms designed by the current Government, there is little hope the latter objective can be met.

For intellectual gravitas, key marketing and PR words were deployed in the Strategy, promising more assistance, subsidies and supports to entrepreneurs, and more “clusters”. The same Strategy also promised to cut the number of business innovation assistance schemes and streamline business development programmes.

Taken together, these changes suggest that the Irish entrepreneurship environment will remain firmly gripped by State bureaucracy and will continue churning out state-favoured enterprises with clientilist business models. The fact that the said platform of enterprise supports, having been in existence for some 12 years, has failed to deliver rapid growth of innovation-focused high value-added indigenous entrepreneurship to-date seems not to bother our policymakers.

Other elephants in the room – some spotted by the very same Government years ago, while in opposition – are mentioned and, predictably, left unchallenged. One example: the Strategy promises yet another Action Plan to “identify ways to use Government procurement in a strategic way to stimulate … innovative solutions.” Back in 2011, this Government has already promised to do the same.

Overall, the fruitcakes of economic policy planning by the Government and NCC both lack vision and details. The two documents do contain some good, realistic and tangible ideas, but, sadly, these are buried beneath an avalanche of unspecified promises and uncontested figures. Risks to implementation of these policies may outweigh incentives for reforms. Lack of realism in expectations may overshadow the potential impact of the proposals.

More fruitcake, anyone? There’s loads left…

Box-out: 

In the latest report published this week, the European Banking Authority (EBA) analysed data from 64 banks with respect to their capital positions and the underlying Risk-Weighted Assets (RWA) holdings. Overall, capital position of the EU banking sector “continued to show a positive trend,” according to EBA, with Core Tier 1 capital holdings rising by EUR 80 billion. This, “combined with a reduction of more the EUR 800 billion of RWAs” means that the EU banks are building up risk buffers at the same time as pursuing continued deleveraging. The latter is the price for the former: higher capital ratios are good for banks’ ability to withstand shocks, deleveraging of assets is bad for credit supply to the real economy. On the net, however, as capital ratios rise, the system is being repaired so the price is worth paying. The improvements, however, were absent in one economy. Per EBA, Irish banks (Bank of Ireland, AIB and Permanent TSB) are unique in the EU in so far as they are experiencing simultaneous reduction in capital ratios and a decrease in Risk-Weighted Assets, which only partially offset the drop in capital. Put simply, Irish banks deleveraging is not fast enough to sustain current capital ratios: we are paying the price, but are not getting the benefits.

EBA chart (click to enlarge):

15/6/2013: Irish Health Pricing Policy: Stupid, Short-Termist & Costly

Per Irish Times article, the Government is planning to impose a massive price hike on hospital beds, leading to health insurance prices hike of estimated 30%.

This Government has been disastrous when it comes to containing the costs of healthcare. Here are three charts showing:

1. That the within the category of Miscellaneous Goods and Services, to which Insurance Services belong, Insurance Connected with Health posted the highest price inflation since December 2011, with index of prices rising to 127.4 in May 2013 against the benchmark of 100 in December 2011. 
2. In last 12 months, through May 2013, health insurance costs rose 12.5%. This represents the highest rate of cumulated inflation over 17 months from January 1, 2012 through May 2013 for any non-food item of expenditure recorded by the CSO and the second highest rate of annual inflation for any non-food line of expenditure after a bizarre 21.2% price hike in 'Cultural admittance' costs.
3. Across all categories of consumer expenditure, Irish Government controlled or regulated prices (with controls exerted either via high incidence of specific goods and services taxation, where taxes imposed by the state account for over 1/2 of the product final cost; or via State regulation setting prices; or via semi-states dominance in the sector allowing monopoly power pricing, etc) dominate heaviest price increases categories.

The charts below are easy to read: in Yellow, I mark the State-dominated sectors, with blue bars marking other sectors. All price indices are through May 2013. All data is from CSO.

Charts above confirm the observations made in points (1)-(3).

This Government is clearly on an economic suicide course. Raising health insurance costs will multiply demand for public healthcare & increase the cost of this demand by forcing more patients into emergency rooms. Worse, the completely moronic (and I cannot find any other way of expressing this) system will create a cascading cost increase to public system.

Currently, an insured patient in a hospital yields: vat and other tax revenues to the State, and generates positive return per bed occupied. In addition, the patient is pre-screened for hospital admission by a private doctor 9also generating vat and other tax revenues to the state) thus avoiding emergency room admission.

Forcing this patient from insurance into public system removes all of the above tax revenues and leads to the patient going via emergency room into admission. This means higher emergency room costs, plus higher treatment costs, because by the time a patient goes through with emergency room their admitting point condition would be most likely worse than were they to go through more preventative care and monitoring with private doctor pre-screening.

The word for this policy on health costs inflation is idiocy. Pure and simple.

10/10/11: The Gathering

According to the latest CSO data, 6,037,100 foreign visitors came to Ireland in 2010 and in January-July 2011, there were 3,696,000 overseas visitors to Ireland. Of the above, in the same two periods, 935,500 visitors (2010) and 594,700 visitors (January-July 2011) from overseas to Ireland came from North America a rise of 13% on January-July figures for 2010.

In 2009 (the latest for which data is available via CSO), visitors from North America spent €620mln excluding international airfares during their trips to Ireland. The number of visitors in the same period from North America amounted to 980,000, implying per-person per visit spend of €632.65.

Given that since 2009 continued deflation in domestic economy has reduced the costs of travel to Ireland, suppose the number above applies in today's terms. Let us, therefore, assume that per-visit per-person spend for North American visitor to Ireland is somewhere around €650.00.

"Global Irish Forum" promised to increase these numbers by 325,000 additional visitors in 2013 or ca €211.25mln for the year 2013.

This means that the GIF promises to yield a whooping:

• 5.38% increase in the total number of visitors on 2010;
• 5.13% increase in the total number of visitors on projected number of visitors in 2011;
• 34.74% increase in the total number of visitors from North America in 2010;
• 31.88% increase in the total number of visitors from North America projected for 2011 based on January-July data
• 5.45% increase in the total spending by visitors to Ireland on 2009 annual levels

Over the period during which GFI guests wined and dined in Dublin contemplating this dramatic economic stimulus, Irish state moved 3 days closer to repaying €737mln of yet another Anglo unsecured, un-guaranteed bonds to largely foreign investors. The cost of these bonds will be equivalent to repeating the achievements of The Gathering for 3 years, 5 months 26 days 9 hours and 36 minutes, not accounting for costs and inflation.

In the end of the GIF the delegates also agreed another substantial measure for boosting the Irish economy and improving Irish society - the Diaspora Awards, which will be carried out at the expense of the Irish taxpayers and will comprise annual gathering of the best and the brightest minds who have concocted the idea of The Gathering.

06/03/2011: The Programme for Government - Part 1

Here are some of my comments (notice - not criticisms, by comments - these are thoughts in progress) on the FG-Labor Programme for Government. Off the top, I think there are some very good objectives outlined in the document, but...

The current post covers pages 2-7 and the subsequent posts will be dealing with other sections.

“The Parties to the Government recognise that there is a growing danger of the State’s debt burden becoming unsustainable and that measures to safeguard debt sustainability must be urgently explored.” Page 5.

[The problem, of course, is that the debt burden is not becoming unsustainable, it is already unsustainable. In other words, the core objective is significantly misplaced in the PfG 2011. Instead of dealing with the core issue of excessive debt, the PfG 2011 is attempting to address the ‘unsustainable rate of growth in debt’.

Imagine achieving such a objective in full and arresting growth in debt. The level of debt of ca €220bn already accumulated by the state in direct and quasi-direct forms will exert interest repayment pressure of ca €12-13 billion per annum depending on financing arrangements achieved. That implies that ca 30% of the tax revenues will be driven into simple maintenance of interest on the debt. Paying this debt down to 60% of GDP over, say, 10 years horizon will cost additional €9 billion per annum in principal repayments (assuming 3% average annual rate of growth through 2021). That means a massive €21-22bn will be outflowing annually from the state revenue to maintain the path to debt reduction consistent with the EU targets over 10 year horizon.

What does this translate into in terms of our tax revenue. If the Government were to achieve the tax revenues of 35% of GDP (roughly consistent with the current plans), in 2011 or debt servicing and repayment plan would swallow 37.5-39.3% of our total tax revenues, declining gradually to 27.1-28.4% of total tax revenues by 2021. Again, these numbers assume 3% pa growth on average through 2021.]

“We will seek a reduced interest rate as part of a credible re-commitment to reducing Government deficits to ensure sustainability of our public finances.” Page 6. [See comment above]

“…we will defer further recapitalisation of the banks until the solvency stress tests are complete and known to the new Government.” [This is fully correct – the process of recapitalization of the banks should start with the full assessment of the capital requirements]

"As an interim measure, we will seek to replace emergency lending to our banks with medium-term, affordable, official financing ...” [I wonder what this means...]

“We will end further asset transfers to NAMA, which are unlikely to improve market confidence in either the banks or the State.” [This is a good starting point, but a much deeper review of NAMA, and, in the end, a full roll-back of NAMA will be required. The PfG 2011 does not reach that deep.]

“We will ensure that an adequate pool of credit is available to fund small and medium-sized businesses in the real economy during the re-structuring and down-sizing programme.” [Where is this pool of credit come from? Who will administer the new lending? How will the new lending be priced? None of these questions are answered neither in principal, nor in sufficient operational detail.]

“The Government accepts that enabling provisions in legislation may be necessary to extend the scope of bank liability restructuring to include unsecured, unguaranteed senior bonds.” [Again, a vaguely phrased, but correct principle.]

“We will create an integrated decision making structure among all relevant State Departments and Agencies to replace the current fragmented approach of State bodies in dealing with the financial crisis.” [This is a good idea, but I cannot understand how a new body can override the independent decision-making across CBofI, NTMA, NAMA and DofF.]

“The new Government will re-structure bank boards and replace directors who presided over failed lending practices. We will ensure that the regulator has sufficient powers of pre-approval of bank directors and senior executives. To expedite this change-over we will openly construct a pool of globally experienced financial services managers and directors to be inserted into key executive and non-executive positions in banks receiving taxpayer support.” Page 7.

[Excellent idea, much need and all, but… (1) How will the Government deal with those directors and executives who should be replaced, while their contracts remain running? Fire them? Breach contracts? (2) What does the ‘pool’ mean? You can’t secure people to ‘stand by’ as a part of the pool while waiting for an appointment – you either will have to pay them to be in the pool, or you will need to hire them in immediately.]

“We will insist on the highest standards of transparency in the operation of NAMA, on reduction in the costs associated with the operation of NAMA, and that decision-making in NAMA does not delay the restoration of the Irish property market.” [Another excellent objective, but again, this raises more questions than it answers. NAMA legislation sets out NAMA as non-transparent, secretive and completely arms-length entity. This was also, in part, conditioned by the funding structure of NAMA. Breaking this structure implies full contagion from NAMA operations and funding to the Exchequer. The implication is that the quasi-Governmental debt might become fully sovereign debt. As far as the NAMA effect on the property market goes, in order to prevent NAMA from continuing to induce market uncertainty, the Government will need to reverse NAMA and force the banks to manage their own exposures. Some immediate sales of properties will be required.]

“Once the banking sector has been restored and is functioning effectively, we will introduce a bank levy based on the size of a bank’s liabilities (other than shareholder capital).” [This is a major problem. (1) A bank levy cannot be set against any new banks or banks that are not covered by State recapitalizations, otherwise no new entries will take place into the Irish market, and the existent non-State dependent banks will exit the market. (2) Any such levy will be in effect another tax on ordinary users of banks services, as in the reduced competition in the market, the banks will be able to pass the full cost of the levy onto their customers. In other words, such a levy will be a tax under a different name.]

“We will establish a Strategic Investment Bank” [Which again raises the issue of fair competition in the market for those banks which currently operate without Government subsidies and/or any potential new entrants. It also raises a huge number of questions as to the nature of the SI Bank, its management, strategy, funding, operations etc.]

“We recognise the important role of Credit Unions as a volunteer co-operative movement and the distinction between them and other types of financial institutions. In Government, we will establish a Commission to review the future of the credit union movement and make recommendations in relation to the most effective regulatory structure for Credit Unions, taking into account their not-for-profit mandate, their volunteer ethos and community focus, while paying due regard to the need to fully protect depositors savings and financial stability.” [A good idea, but might be coming dangerously close to the politicized alteration of both the regulatory regime in financial services and the Credit Unions industry itself.]

“We support the future development of the IFSC as a source of future employment growth, subject to appropriate regulation. We will establish a taskforce on the future of the financial services sector to maximise employment opportunities in financial services for staff leaving employment as a result of downsizing.” [Again, a good idea, but the devil is in the detail. There are plenty of task forces dealing with the future of IFSC and delivering very little on the cost of running these. How will the new task force be different?]

Economics 20/05/2010: No comment needed

This is in just now from Ryanair:

Starts

IRELAND LOSES RYANAIR HANGAR AND UP TO 200 JOBS TO GERMANY AND FRANKFURT HAHN AIRPORT

(Thursday, 20th May 2010) ...At a press conference in Mainz today, hosted by Ryanair’s Michael O’Leary and Minister for Economics and Transport, Hendrik Hering, Ryanair announced that it would invest €25m in building a new two bay aircraft maintenance hangar including two aircraft simulators and a 16 room cabin crew training centre, in a move which will create up to 200 new Ryanair jobs at Frankfurt Hahn Airport.

...This new facility and jobs will replace those previously offered to the Irish Government earlier this year in the empty Hangar 6 at Dublin Airport. Ryanair regrets that even today, many months later, Hangar 6 remains unused for base maintenance, while up to 900 SRT Engineers remain unemployed, drawing the dole. Many of these people could have found skilled, well paid work, with Ryanair, had the Irish Government accepted the airline’s offer to buy or lease Hangar 6 and divert a significant proportion of Ryanair’s base maintenance to Dublin Airport.

Speaking today in Germany, Ryanair’s Michael O’Leary said:

“While we are pleased to announce this new investment in Germany and Frankfurt Hahn Airport, I regret that the Irish Government stood idly by and did nothing to win these new jobs for Ireland. The Irish Government talks a lot about competitiveness, but is short on action.

“At a time when traffic and tourism is collapsing in Ireland, the Irish Government prefers to impose tourist taxes, and order big increases in Dublin Airport’s fees, rather than work with the world’s largest airline to lower access costs, win investment in maintenance or create hundreds of well paid engineering jobs at Dublin Airport.

“Sadly in Ireland, we are stuck with a Government which likes talking about the “smart economy” but prefers implementing “dumb policy”. The sooner they reverse these tourist taxes and slash high costs at the Government owned DAA airports, then the sooner Irish airports and tourism can return to low cost access and traffic growth”.

Ends. Thursday, 20th May 2010

Economics 13/03/2010: Why Farmleigh report falls flat

I must confess, last week produced a bumper crop of new (and old) 'proposals' for fixing Ireland. Tasc had one (the Letter of 28) - it was utterly unworkable, self-interested and dogmatic - despite the fact that its desired objectives were predominantly positive. Task Force on Innovation had one - it was painfully lengthy, saccharine and dogmatic in its own way. An idea that Ireland can create high-tech jobs bu busloads was simply beyond any support and the analysis produced in Chapter 13 to support this assertion is exceptionally naive.

In between, largely unnoticed, was the missive issued by the Department of Foreign Affairs titled simply "Progress Report on Follow up to The Global Irish Economic Forum".

This unassuming publication is, nonetheless, the official endorsement of the expensive, though originally ambitious (deflated by the DofFA bureaucrats/organizers who went through the original list of invitees with a red pencil removing any potential 'trouble makers' - aka original thinkers) undertaking back in September 2009. It is full of woolly and teary-in-the-eyes stuff that doesn't deserve much attention, except that it puts Ireland Inc to international public view. DofFA aims this report not so much at us, the residents, but at the foreign 'diaspora' - and through them - at international markets.

So let's take a quick scalpel to that boil.

Per DofFA: "The emphasis in the Budget [2010] on encouraging innovation, maintaining Ireland as a friendly and supportive environment for international business, and highlighting emerging strengths in areas such as renewable energy, green technology, scientific research and innovation, all reflect the concerns and views put forward by those present at Farmleigh."

Of course, DofFA would do well to read the Budget. It has a tax break for booze (un-passable to consumers) and a tax break for new cars (passable to German, Japanese and other producers of these). Which part relates to 'encouraging innovation' etc? On Green - there is a new tax, but no 'highlighting emerging strengths'. Page 3 of the said DofFA report therefore already contains a very sever stretch of 'truth in reporting' concept.

The report, worryingly, brings up numerous references to direct and indirect Exchequer financing for expanded post-Farmleigh 'Network' of 'Global Irish' (or shall we call them 'Glorish'?). On our knees economically, we, the resident population will be floating financially such worthy causes as 'regional' Farmleigh-style gatherings around the world, Ministers participation at these, an hereto invisible organization called Irish Technology Leadership Group in Silicon Valley, and one Irish Innovation Centre, plus other activities. 'Glorish Youth Farmleigh' junket is planned as well.

Perhaps the most grotesque (and from my point of view is the idea of going to the Irish diaspora worldwide hat-in-hand to get some cash for the Exchequer. "Diaspora Bond: the Minister for Finance announced in Budget 2010 that the NTMA and his Department will develop a National Solidarity Bond which will be available for investment in 2010. Initially, the bond is expected to be available to Irish residents. The NTMA, the Department of Finance and relevant Departments are examining the feasibility of extending it to non-residents and how to successfully market it abroad, including through Irish Diplomatic Missions."

I commented before on the notion that our Government (and some of its close allies on the Left) have somehow gotten into their minds that they can sell this 'Tin Whistle & Shamrocks' bond for more than they are selling ordinary bonds. It is simply naive. Any yield offered on these bonds will require a premium over ordinary bonds issued to the international investor community. Why? Because this Government has shown to the entire world that it is willing to sacrifice domestic investors for the sake of protecting foreign bond holders. They are doing this with the banks. And as a result, any investor in a 'special' bond will ask for extra return in exchange for surrendering the protection granted to institutional foreign investors.

But read carefully above - there is an idea that such a bond can be marketed to retail investors outside Ireland via our diplomatic missions. Have they heard of MiFID or its equivalent regulations around the world? Imagine:

Our diplomatic mission in, say NYC, with a sign: 'Paddy Bonds: Buy Em Here'. A bureaucrat/ diplomat at the desk. A gentleman walks in and says: "Can you tell me about this fine bond offer?" Our man starts blabbing about Budget support for innovation and the fantastic opportunity to get X% on your investment, should you buy this Y-year bond. Another man walks in. Shows a little card, saying "SEC" at the top and asking to see our mission representative's authorization to sell retail investment products. Zoom forward ten second. The bureaucrat is led in handcuffs, Fox News outside with a camera crew and SIPTU/CPSU rep running after them shouting "Social partners will not stand for such treatment of ordinary workers!". NYTimes headline next day: "Erin Bonds Bust". Within a week - the same happens in all civilized nations protecting their citizens from unauthorized dealers in financial products.

Anyone in Farmleigh scratched their head over this possibility? Or did they all think we can get our missions staff to re-train (in our knowledge economy) to become authorized advisers all around the world? Nope - swept in a collective enthusiasm for 'radical, man, thinking' they just popped out this pearl of wisdom.


Forget all the nearly macabre pedaling of the tourism offers in the report - the ones that occupy several pages. Take a look at the beefy parts:

Section 32: "A new €90 million National Energy Retrofit Programme, ...was announced in Budget 2010. The programme will draw together existing retrofit programmes into a more coherent, overarching framework, leveraging the relationship between energy companies and their customers to promote energy efficiency improvement measures and energy services to end-users. This new programme has the potential to be the most innovative, ambitious, energy-related initiative ever introduced in Ireland. The 2010 activity alone, disbursing €130 million, will support energy efficiency improvements in up to 60,000 homes in 2010, support 6,000 jobs directly and will create energy efficiency savings worth a total of €570 million over their lifetime."

Ok, figures check: how can a €90 million programme disburse €130 million? Do money now grow on the Gov offices lawns? And notice the reference to 'energy companies' and their customers. Of course, most of this funding is therefore destined to settle into ESB, Bord Gais, and Bord na Mona coffers. To promote energy efficiency of the least efficient generators who happen to - courtesy of the state protection - be the dominant market players. But wait, 130 million for 60K homes runs to an average of €2,167 per home. Now apply arithmetic: at least 20-30% of every Government programme is consumed by admin and own costs. Then there's VAT on services and supplies. In real terms, we will be lucky if the €1,198 per house actually gets disbursed. It is better than nothing, but it is hardly qualifies as having "the potential to be the most innovative, ambitious, energy-related initiative ever introduced in Ireland".

The idea is good, don't take me wrong. It is just being devised to suit the wrong crowd - the crowd that got us where we are in terms of inefficient, severely polluting and excessively expensive energy market.

Incidentally - has this anything at all to do with Farmleigh? Nope - it was announced two years before Farmleigh took place and was budgeted for the first time in 2008.


The entire section on economic development - from mid page 8 through mid page 10, accounting for 1/5 of the substantive sections of the report has absolutely nothing to do with Farmleigh. In the end, roughly 1/3 of the report relates to ideas discussed in Farmleigh, with the rest being

• either tripe as the talk about the St Patrick's Day junkets for ministers (as if these never happened before Irish Diaspora gathered in Dublin last September), or
• something that has been announced/planned for before the Farmleigh, e.g. Dermot Desmond's 'Culture Ireland' Uni (don't get me started here).
  

What Farmleigh report does well, then? It shows a deep degree of incompetence and insecurity amongst the political and bureaucratic masters of Ireland Inc. It's comprehensive lack of new ideas, lack of departure from the status quo are frustrating, especially since we know - many of those who were at Farmleigh last September really do have good ideas.

It is simply that DofFA and this Government had no desire to hear them speak their minds. Which brings me to the revelation that was not made before (to my knowledge) about Farmleigh. In months of preparation for Farmleigh, DofFA took over the lists of invitees, prepared by the idea originators and mercilessly cut out all potential invitees they did not approve of. From that list gone were a number of public figures very active in policy debate in this country and internationally. They then added a number of those, deemed by the bureaucrats as representative of the Social Partnership. How do I know this? The original owners of the Farmleigh idea actually told me this a week before Farmleigh took place!

Sounds familiar? Yes - Farmleigh, despite sporting some very good corporate leaders, was just another state-run, state-owned junket, designed to appease our ruling elite. The 12 page report on it that took DofFA 4.5 months to compile reflects exactly this reality.

Economics 12/10/2009: Bertie's quote of the day...

Help us, but as we deal with the fallout of the Green Party disastrous attempt to save face on economic policy, here is a quote of the day from our former Dear Leader (may I remind you that my sources suggest that the current Governing Party's largest fraction in the Dail actually lobbying for his return):

Irish Times (without irony): "Were they not the people you suggested should go off and commit suicide at the Irish Congress of Trade Unions (Ictu) conference in 2007?"

Bertie: "That wasn’t about a boom-and-bust issue . . . It was trying to get the Ictu to hold their nerve and keep productivity high. Anyway, it was the collapse of Lehman Brothers that did the real damage. That decision will in history be written as the biggest mistake that American administration ever made, because Lehmans was a world investment bank. They had testicles [sic] everywhere."

Oh, my, what can one add...

Full interview available here.

Economics 05/08/2009: Irish Exchequer - back into the furnace for a fresh meltdown

On to the Exchequer Returns for July 2009, then. As I predicted well back in February-March 2009, we are on track to reach the milestone of the total tax receipts falling below €31-32bn for 2009. I have not changed this prediction and I am still sticking to it.

The latest data is a disaster across the board:

• Tax Revenues are down 17.57% yoy in nominal terms, total revenue down 16.82% due to the increase in non-tax revenue, constituting, among other things a massive rip off of Irish consumers at the Dublin Airport and Dublin Port;
• Total current expenditure is up 4.55% yoy in nominal terms;
• As a percentage of GDP, tax revenue used to be 12.19% in 2008, now it is down to 10.99% thanks to the fall off in tax receipts, but overall current receipts declined from 12.41% of GDP to 11.29% - a bit shallower, as the Government continues to squeeze consumers and businesses for non-tax cash;
• Current expenditure has gone through the roof - rising from 14.18% of GDP in 2008 to 16.21% in 2009 - the real cost of public sector excesses (once social welfare increases are factored out);
• Current account deficit ballooned to €8.364bn in January-July 2009, an increase of 155% yoy. This used to account for 1.76% of the nation GDP in 2008. Now it is 4.92% and rising;
• Capital account deficit has gone to €8.075bn in January-July 2009 up 135.3% yoy, and as a share of GDP reaching 4.75% so far, as compared to 1.85% in 2008;
• Subsequently, overall Exchequer Deficit now stands at a whooping €16.44bn - up almost €10bn on 2008, or 145%. The ED now accounts for 9.67% of GDP, up from 3.61% in 2008. Remember that wishful thinking of a single-digit deficit for 2009? Gone in a blink of an eye;
  
• As a percentage of GDP our total annual borrowings have reached 14.72% in January-July 2009, up from 5.8% in 2008.

Table below summarizes these gruesome stats, but what is already clear from this data alone is that despite Mr Lenihan and other officials heralding the turn around in Irish public finances that was 'recognized by international markets', their own data shows that this turnaround was about as real as Mars Attacks was a documentary.
Now onto details.

Tax Heads:

• Customs, Excise, VAT and CAT down 21-26% yoy;
• Income tax and VAT - two taxes paid by consumers - are rising in overall share of total tax revenue, as Mr Lenihan loads the burden of his Government's unwillingness to cut public sector waste onto the shoulders of average families;
• CGT down a whooping 69.35% yoy despite resurgent markets;
• Stamps down 64.12% yoy predictably;
• Unallocated tax receipts up 55% - presumably on the back of the Revenue going after middle classes to milk out every single penny left in their accounts - anecdotal evidence shows exactly such a predatory behaviour with Revenue officers querrying any out of line items such as medical expenses from families with 3-4 kids;
• Corpo tax is up stron 31.55%, but not because of any green shoots on business front - simply due to changes in the scheduling.
  

Table below illustrates
Now departmental expenditure (voted only):

• Clownish numbers from D of Agriculture - spending up 35.12% yoy as the country is going into tail spin. Agriculture used to account for 2.3% of total voted expenditure. It now holds a 3.08 share. Soon, we will have agriculture - contribution to GDP 3%, as a burden on the Exchequer 6%;
• Only 5 departments show double digit reductions on 2008 spending - the minimum target for any serious fiscal stabilization programme in my view. Significantly, CMNR - down 32.16% on 2008, FA - down 19.28%, Transport - down 14.87% and AST down 14.51% are the only ones close or at the target (my minimum target for cuts is in the order of 15-20%);
• CRGA is down 6.05%. When this Government came to power, Brian Cowen has promissed the nation to put Irish at the heart of this Government's policies. Clearly, he is not too enthused about the objective... And yet, seriously speaking, the Department is miles away from serious change: at 6.05 reduction in expenditure, it is 9th ranked in taking appropriate measures out of 13 departments (15 less SFA and H&C);
• Incidentally, H&C are doing their job - they are up only 1.5% yoy despite having to face more demand for free medical services, defaults on medical payments and beraing some of the social welfare costs increases too - Mary Hearney is doing her job;
• Neither Finance Grou (down 9.06% only) nor D of Taoiseach (down 10.25%) are leading in the right direction.

Table illustrates
Non-voted current expenditure is often overlooked by analysts, but the figures relating to the burden of our debt (just 18 months into the fiscal 'solutions' to our crisis) are telling. Interest on bonds now accounts for 10.2% of our entire tax revenue (up from 6.32% in 2008). Total cost of financing these bonds now amount to 13.55% of entire tax intake (up from 8.46% in 2008). We are already drowning in a sea of debt.

Two other notables in the table above:

• Total non-voted current spending rose 19.24% yoy, with elections cost up 7.54% in 2009 and Oireachtas Commission costs up 6.69% - someone is living large out there in the public sector la-la-land;
• Nat Devel Finance Act spending is also up - 125%, now that is a current expenditure item, not a capital one.
  

Finally, let us take a look at the tax heads performance against the April Budget 2009 profile (remember - the profile is only just 3 months old, so you shouldn't expect much deterioration in the calm and more predictable summer months, if, that is DofF can actually do forecasting). Ahem, not really good:

• Income Tax 2.8% behind target, with a shortfall (cumulative) of €185mln;
• VAT is 6% behind target (as one could have predicted in the wake of our disastrous policy proposed and pushed through by the DofF boffins of raising VAT in a small open economy with competitive retail just across the border;
• Corpo and Excise are ahead of target because the boffins cannot forecast the least volatile and inter-linked (via imports of inputs) tax heads;
• Stamps 17.3% below target - which is predictable, unless you are DofF forecaster. You see, they think, alongside with our bankers, that people will simply bottom-out of not buying property etc. Alas, the bottom in the markets for investment and consumption is a Zero expenditure at home. We have some room to travel there still;
• CGT and CAT heads are now 16.7% and 14.4% below target; so
• Across CGT, CAT and Stamps, DofF boffins average monthly error under Budget 2009 (April) estimates is now around 6.1% per month! Wow - and that is for very well paid job-secure workers who have no other responsibilities aside form Budgetary estimates?
• So total tax receipts are now 3% below target. Linear projection implies another 5.2% in deterioration over DofF projections through December - an annual fall off the target of ca 8%, bringing tax revenue to €31.6bn not €34.4bn as envisioned in DofF's April 2009 framework.

Table below illustrates

And now to the conclusion: it is simply impossible to believe that these numbers can be interpreted by anyone - international or domestic markets participants, shy of the DofF own employees and the delusionary Government we have - as a confirmation that this Government has done anything to address the fiscal crisis. The July stats are simply a loud confirmation of what we knew all along - taxing yourself out of the fiscal overhang does not work! Never will!

Economics 03/07/2009: Exchequer returns

So we have June Exchequer returns. Pretty nasty stuff, though some say it’s all ok. Here is why I disagree:

Much of the effect in flatter declines in tax revenue was due to frontloading corporation tax (October 2008 Budget). Now, Government April 2009 budgetary forecast did not reflect the expected revenue from this source, so the windfall should have boosted the overall tax receipts in June. Hmmm... but we are still €188m or 1.2% behind forecasts.

What gives? Brian Leninham has unleashed a savage April 2009 mini-Budget (-1.3% of the national disposable income was expropriated by the State or Euro 1.23bn, split as 2/3 to income tax and 1/3 to Health and PRSI levies – the latter two not entering tax receipts on the Exchequer banalce sheet, but counted as income to Government departments, yet another trick by which our obscenely high tax regime is classified as a ‘low tax’ one) and June was the first month where all new changes (errr – tax hikes) were in. So consumers are now on a renewed push down in spending:

Excise duty down 11.5% yoy in June, as opposed to 8.1% in May – tell me that after the improbably strong fall in 2008 a new double digit dip is not a collapse, and I would have to ask you what you are having for a drink that’s so strong;

VAT was down 23.3% in June yoy – also deeper than the -21.2% average decline in a year to May (although these are not seasonally adjusted figures);

Income tax is down 15.6% yoy or 2 percentage points behind DofF estimates.

Net result: deficit is now at €14.71bn against revenue of €16.31bn. Chart below illustrates revenue trends in terms of monthly average receipts.

All of this, however, is beyond the main point - even if revenue is flowing in at the rate the DofF forecast - which seems to be the desired objective of all our observers, analysts and the Government, this revenue will be bleeding the real economy. There is no point of balancing the Government expenditure at the cost of killing the economy - which is what our Exchequer is currently attempting to do...