05/12/2011: Irish Exchequer Receipts: November 2011

Time to catch up with that data on Exchequer receipts for November - the critical month that makes or breaks Government budgets.

Income tax receipts: these are down to €12,709mln in 11 months of 2011, or -€272mln to target (-2.1%) but an impressive 22.5% above same period 2010 levels.

Sounds like tax policies of the past bearing fruit? Not really. Income tax rose €2,336 on 2010 in absolute terms, but at least €1,850mln of this is due to Health Levy reclassification as USC and aggregation into income tax receipts. Yes, folks, for all income tax increases in years past, the Exchequer netted less than €500mln in new revenues this year, or to be slightly more precise - an uplift not of claimed 22.5% (DofF maths), but of closer to just below 4.7%. The picture below looks good, but in reality, Income tax revenues are running below 2008 and 2009 levels, still, once Health Levy is factored in.

More ominously, the under-€500mln lead this year is based on the annual rate of Health Levy pay-in for 2010 spread evenly over all months. Of course, it probably was also peaking at around November, as usual seasonality in returns applied to it as well as to other income-related measures. Which means that it is quite possible that the annual rate of income tax increases will be even lower, once we see December figures than 4.7% figure suggests.

Let's recall that these figures come on top of shrinking workforce and rising unemployment and you get the picture - people at work are not getting anywhere, with their taxes rising dramatically in recent years, but Government revenue is not recovering either.

When it comes to VAT (second largest source of state revenues), the numbers are abysmal. November 2011 revenue is at €9,550mln or €464mln off target and 3.3% below 2010 figure (-€464mln). VAT receipts are 7.9% below those for the same period of 2009. Chart below shows what happens

Corporation tax receipts - the reflection of our booming exporting economy came in at €3,510mln or €236mln behind target and 4.3% or -€158mln down on 2010. Compared to 2009 these are now off 6.43% or -€241mln. Fourth straight year of decline.

Excise tax, the third largest category, is upo a whooping €15mln on target to €4,130mln, year on year the uplift is €39mln or 0.9%. And there was an even greater uplift in Stamps - up €442mln o  target to €1,297mln and up 51.6% year on year. Except, of course, that uplift is accounted for by the hit-and-run pension levy. Net of the pension levy, Stamps are actually down 1.75% yoy.

So total tax receipts are:

• Down €520mln on target (-1.6%) but officially up 7.9% (+€2,325mln) yoy
• Up just €18mln year on year once we net out Pension & Health Levies.
• Down on target in 3 out of top 4 tax headings and 
• Down on target in 5 out of 8 headings

Meanwhile, rosy forecasts continue to flow from the DofF which projects that 2012 total tax revenue will rise 4.13% (see here)... pass that funny gas mask, doc.

1/12/2011: Sunday Times, 27 November 2011

Here is the unedited version of my article in the Sunday Times, November 27, 2011.

Since the collapse of the bubble, Irish perceptions of the residential and commercial property markets have swung from an unquestioning adoration to a passionate rejection.

As the result of the bubble, the overall share of property in average household investment portfolio is likely to decline over time from its Celtic Tiger highs of over 80% to a more reasonable 50-60%, consistent with longer term averages in other advanced economies. But housing will remain a significant part of the household investment for a number of good reasons.

While providing shelter, housing wealth also serves as a long-term savings vehicle and an asset for additional borrowing for shorter-term investments. Security of housing wealth in normal times acts as an asset cushion for family-owned start up businesses and a convenient tool for regular savings. Over the lifetime, as demand for housing grows with family size, we increase our savings, normally just as our life cycle earnings increase. We subsequently can draw down these savings throughout the retirement when income from work drops.

In short, in a normal economy, housing and household investment are naturally linked. In this light, the grave nature of our economic malaise should be apparent to all. Ireland is experiencing a continued and extremely deep balance sheet recession, with twin collapses in property prices and investment that underlie structural demise of our economy.

The latest Residential Property Price Index, released this week, shows that things are only getting worse on the former front. Overall, residential property price index fell to 71.2 in October from 72.8 in September. The latest monthly decline of 2.2% is the sharpest since March 2009 and the third fastest in the history of the index. Relative to peak prices are now down 45.4%. Take a look at two components of household investment portfolios: owner-occupied and buy-to-let properties. For the majority of the middle class families, the former is represented by a family home. The latter, on average, is represented by apartments. Nationwide, per CSO, prices of these assets are respectively down 43.7% and 57.9% relative to the peak.

The impact of these price movements is significant and, contrary to the assertions of the Government and official analysts, real and painful. House price declines imply real capital losses to households and these losses have to be offset, over time, with decreased consumption and falling investment elsewhere. Absent normal loss provisioning available to professional financial sector investors and businesses, households suffer catastrophic collapses on the assets side of their balance sheet, while liabilities (value of mortgages) remain intact. Decades-long underinvestment and low consumption spending await Ireland.

Dynamically, things are not looking any brighter today than a year ago. House prices have fallen 14.9% year on year in October, the worst annual drop since February 2010. Apartments prices are down 19.8% over the last 12 months – the worst annualized performance since April 2010.  Given the price dynamics over the last three years, as well as the current underlying personal income, interest rates and rental yields fundamentals, Irish property prices remain at the levels above the short-term and medium-term equilibrium. This means we can expect another double-digit correction in 2012 followed by shallower declines in 2013.

Not surprisingly, the collapse of the property markets in Ireland is mirrored by an even deeper crash in overall investment activity in the economy. The latest National Accounts data shows that in 2010, gross fixed capital formation in Ireland declined to €19 billion in constant prices. This year, data to-date suggests that capital formation will drop even further, to ca €17 billion or almost 58% below the peak levels. In historical terms, these levels of investment activity are comparable only with 1996-1997 average. If we assume that the excess investments in the property sector were starting to manifest themselves around 2002, to get Irish economy back to pre-boom investment path would require gross fixed capital investment of some €26.9 billion per annum or more than 60% above current levels.

Between 2000 and 2009, Irish economy absorbed some €319 billion in new fixed capital investments. Assuming combined rate of amortization and depreciation of 8% per annum, just to keep that stock of capital in working shape requires €25.5 billion of new investment. This mans that in 3 years since 2009, the Irish economy has lost some €15.5 billion worth of fixed capital to normal wear-and-tear. In short, we are no longer even replacing the capital stock we have, let alone add new productive capacity to this economy.

Looking into sectoral distribution of investment, all sectors of economic activity outside building and construction have seen their capital investment fall by between 18.4% in the case of Fuel and Power Products to 70.4% in the case of Agriculture, Forestry and Fishing sector. So the aforementioned aggregate collapse of investment is replicated across the entire economy.

The dramatic destruction of capital investment in the private sector is not being helped by the fact that Government capital expenditure is also contracting. In 2010, Voted Capital Expenditure by the Irish Government declined to €5.9 billion. This year, based on 10 months through October data, it is on track to fall even further to €4 billion – below the target of €4.35 billion and more than 53% below the peak. In fact, the entire adjustment in public expenditure to-date can be attributed to the capital spending cuts, as current expenditure actually rose over the years of crisis. Since 2008, current expenditure by the state is up 1.9% or €775 million this year, based on the data through October. Thus in 2008, Irish Government spent 17.4% of its total voted expenditure on capital investment. This year the figure is likely to be under 8.8%.

Forthcoming Budget 2012 changes are likely to make matters worse for capital investment. In addition to taking even more cash out of the pockets of those still in employment – thereby reducing further the pool of potential savings – the Government is likely to bring in the first measures of property taxation. This will reinforce households’ expectations that by 2013-2014 Ireland will have a residential property tax that will place disproportional burden on urban dwellers – the very segment of population that tends to invest more intensively over time in property improvements, making the urban stock of housing more economically productive than rural. A tax measure that would be least distorting in terms of incentives to increase productivity of the housing stock – a site-value tax – now appears to be abandoned by the Government, despite previous commitments to introduce it.

Furthermore, we can expect in the next two years abolition of capital tax reliefs, increases in capital tax rates and high likelihood of some sort of wealth taxes – direct levies on capital and/or savings for ordinary households. In the case of the euro area break up, Ireland will also see draconian capital controls.

In short, we are now set to experience an 8-10 years period of direct and accelerating destruction of our capital base. It doesn’t matter which school of economic thought one belongs to, there can be no recovery without capital investment returning back to growth.

Box-out:

In the recent paper titled “The Eurozone Crisis: How Banks and Sovereigns Came to Be Joined at the Hip”, published last month, two IMF researchers identify Europe’s Lehman’s moment in the global financial crisis as the day when the Irish Government nationalized the Anglo Irish Bank. In contrast to the current and previous Governments’ assertions, the IMF study argues that the Anglo was not a systemically important bank worthy of a rescue. As the paper puts it: “The problems [of collapsing financial sector valuations] entered a new phase – becoming a full-blown crisis – with the nationalisation of Anglo Irish in January 2009. The relevance of Anglo is, at first, not obvious, since it was a small bank in a relatively small country. However, …it is possible that the large fiscal costs as a share of Ireland’s GDP associated with this rescue raised serious concerns about fiscal sustainability. Suddenly, the ability of the sovereigns to support the financial sector came into question.” In other words, far from helping to avert or alleviate the crisis, Anglo nationalization caused the crisis to spread. “In retrospect, the nature of the crisis prior to Anglo Irish was simple, being mostly driven by problems in the financial sector… The winding down of Anglo Irish, for example, would have been preferable to its nationalization…” In effect, the previous Government made Anglo systemically important by rescuing it. If there ever was a better example of the medicine that kills the patient.

05/10/2011: Tax burden distribution: Q3 2011

Tax profile for September yielded another sign of continued shift in tax burden onto the shoulders of ordinary households, courtesy of:

1. Continued underperformance in corporate tax returns despite booming exports activity
2. Continued graft of household budgets under the USC and levies.

Overall tax burden in Q3 2011 has shifted as follows:

• Q2 2011 share of Income tax receipts in total receipts was 39.52%. Q3 2011 share of Income tax receipts in total receipts was 38.40% against Q3 2010 share of 33.20% and Q3 2007 share of 28.04%
• Q2 2011 share of VAT receipts in total receipts was 33.22%. Q3 2011 share of VAT receipts in total receipts was 33.17% against Q3 2010 share of 36.81% and Q3 2007 share of 37.41%
• Q2 2011 share of Corporation tax receipts in total receipts was 9.32%. Q3 2011 share of Corporation tax receipts in total receipts was 8.52% against Q3 2010 share of 9.86% and Q3 2007 share of 7.39%
• Q2 2011 share of Excise receipts in total receipts was 14.4%. Q3 2011 share of Excise receipts in total receipts was 13.4% against Q3 2010 share of 14.77% and Q3 2007 share of 13.79%
• Stamps, CGT and CAT combined share in Q2 2011 was 2.64% against Q3 2011 share of 5.67% and 4.73% in Q3 2010 and 12.67% in Q3 2007.

Charts to illustrate:

05/10/2011: Tax receipts for September

Tax receipts for September released yesterday show predictable evolution along the trend established in recent months - the trend of broadly matching the targets, but continuing to surprise on the downside in some core categories. In other words, no signs of recovery here, folks.

Here are the details.

Income tax came in at €9,254mln (this, of course, includes USC, rendering annual comparisons virtually meaningless). Compared to the target, Income tax receipts were up €147mln or 1.6%. Year on year Income tax came in at +25.7%, much of which is due to levies and USC, making multi-annual comparisons even less meaningful. Annual target for the category envisions an uplift of 25.3%yoy so we are slightly ahead of that for now.

The bright-ish spot that is Income tax is offset by the continued fall off in VAT. Through September 2011, VAT receipts stood at €7,994mln down on the target of €8,294mln (-3.6% or €300mln shortfall). Year on year VAT receipts are down 2.04% or -€167mln. VAT receipts are now down 7.7% on comparable period of 2009 and mark the worst year-to-date for 2007-present period.

Corporation tax - the Big White Hope of the 'exports-led recovery' is below target at €2,054mln (do notice that Government's Great Hope is less than 1/4 of the income tax as far as contribution to the overall Exchequer balance goes). Target was €2,085mln, so the shortfall now stands at -1.5% or €31mln. Corporation tax performance through September 2011 is now at the worst levels in 2007-present period despite all the record activities in exporting sectors, which again puts the boot into the Government's claims that exports-led recovery will restore our economy to health.

Excise tax is also underperforming the target, coming in at €3,229mln or €77mln (-2.3%) below the target. Excise tax revenues are also below 2010 levels by some 1.4% so far, implying that through September, 2011 is the worst year since 2007 in terms of excise tax collection.

In terms of smaller taxes:

• Stamps came in at surprisingly high levels of €1,124mln in 9 months through September, up €384mln or 51.9% on the target. This builds on gains in July and, most likely, represents incidental returns from one-off activities, such as €457mln expropriation of private pension funds via the FG/LP levy (HT to Jerry Moriarty of http://www.iapf.ie)
• Capital taxes are below target and posting the worst year so far for the entire 2007-present period.

Overall tax returns are now at €24.098bn, up 0.7% or €160mln on the taget and 8.7% on 2010 performance, with virtually all the yoy gains achieved due to USC reclassifying health levy into tax revenue, plus through increases in tax burden on households.

Relative to overall annual target, 0.7% increase on target through September 2011 and 8.7% increase yoy in outrun to-date are contrasted by the annual target set at 9.9% over 2010 outrun, so we do have to step up tax returns performance in months to come dramatically to deliver on the annual target.

More on the tax burden distribution in the subsequent post.

To conclude - tax receipts show no signs of substantive change in the overall Exchequer position on 2010 broadly confirming that 'exports-led recovery' thesis for restoring Irish economy to health, at the present, remains invalid.

11/08/2011: Exchequer balance for July 2011

Staying on the topic of Exchequer performance - the theme is (see earlier post here) "The dead can't dance". This, of course, refers to our flat-lined economy and the ability of the Government to extract revenue out of collapsing household incomes, wealth and dwindling number of solvent domestic companies.

Let us now briefly cover the remaining parts of the Exchequer equation: spending and overall balance position.

Overall, the Exchequer deficit at end-July 2011 was €18.894bn compared to a deficit of €10.189bn in the first seven months of 2010. The increase reflects a number of things.

The Government has issued back in March this year some €3.085bn worth of bank promisory notes to the larks of Irish banking: Anglo, INBS and EBS, all of which have since ceased to exist. On top of that the Government showered some €5.241bn of taxpaers cash onto the elephants of the Irish banking system: AIB (the Grandpa Zombie) and BofI (the Zombie-Light). To top things up, the Exchequer pushed some €2.3 billion of taxpayers funds into IL&P (the msot recent addition to the Zombies Club).

Controlling for banks measures, 2011 deficit through July stands at €8.241bn which represents savings of €1.449bn on same period of 2010. So, now recall - tax receipts went up by €1.48bn in total. Ex-banks deficit shrunk by €1.45bn in total... which, of course, strongly suggests that the "Exchequer stabilisation" so much lauded by our Government was achieved largely not due to some dramatic reforms or austerity, but due to old-fashioned raid on taxpayers' pockets.


Aptly, folks, austerity is not to be found in the aggregate figures. Per DofF own statement, "total net voted expenditure at end-July, at €25.7 billion, was €224 million or 0.9% up year-on-year. Net voted current spending was up €813 million or 3.5% but net voted capital expenditure was €589 million or 26.4% down. Adjusting for the reclassification of health levy receipts to form part of the USC which has the effect of increasing net voted expenditure, it is estimated that total net voted expenditure fell 2.6% year-on-year." Hmm... ok, there seems to be some austerity, but on capital spending side.

The main culprit for this is the continuous rise in Social Protection spending and low single-digit decreases in spending in some other departments. Hence, unadjusted for changed composition:

• Communications, Energy and Natural Resources spending declined just 8.1% on 2008 levels for the period January-July 2011
• Education and skills - by just 8.2%
• Health - by only 4.3%

While Social Protection spending rose 49.7% on 2008 levels and Department of Taoiseach is up 1%.

It is worth noting that lagging in cuts departments account for ca 49.12% of the total spending by the Government, while Social Protection accounts for 30.07%.

We might not want to see the above areas cut severely back, but if we are to tackle the deficit, folks, we simply have to. Why? Because our debt is rising and this debt is fueled largely by the deficit.

And this means that our debt servicing costs are also rising. Total debt servicing expenditure at end-July, including funds used from the Capital Services Redemption Account was just over €3 billion. Per DofF statement, "Excluding the sinking fund payment which had been made by end-July in 2010 but which has not yet been made in 2011, debt servicing costs to end-July 2010 were some €21⁄4 billion. The year-on-year increase in comparative total debt servicing expenditure therefore was €3⁄4 billion." One way or the other, we are paying out some 12% of our total tax receipts in debt interest finance. That is almost double the share of the average household budget that was spent on mortgages interest financing back at the peak of the housing markets craze in December 2006 - (6.667%).

11/08/2011: Irish Exchequer receipts July 2011

August is a silly season, so forgive me for avoiding digging too deep into silly data. This includes the data on Exchequer spending and tax receipts. They are silly. Why? Because the shambolic rearranging of chairs on the deck of the proverbial Titanic - the so-called reforms of the Departments - has made historical references invalid. We no longer are able to check what the Government is really doing and instead are forced to rely on what the DofF is telling us that the Government is doing.

This means two things for this blog. One, I will still be updating the datasets on spending, but will do this over longer time horizon spans than monthly. And I will still be updating tax receipts figures, which are, at least, more consistent than spending figures.

Here are the latest figures for August.

Total tax revenues for January-July 2011 was €18.633 billion which is €1.48 billion or 8.63% higher than in the same period last year. According to the DofF note, "This year-on-year increase was due primarily to higher income tax receipts, arising from the Budget 2011 measures, including the introduction of the USC. Excise duties, corporation tax, customs duties and stamp duties all recorded year-on-year increases also."


Overall, income tax rose to €7,277mln in 7 months of the year on 5,81mln collected in the same period of 2010 - a 25.1% increase. Again, as mentioned above, this includes USC measures. Income tax receipts are now up 14.5% on same period of 2009 and in fact are ahead of the same period of 2007, but again, this is surely due to transfer of USC.
Sadly, enough, they wouldn't tell us just how much of this increase was organic (out of old tax revenues) and how much due to USC. The note on spending attributes €604mln to USC on the side of the expenditure adjustments. So carrying the same over to tax receipts side implies that non-USC related tax measures in Budget 2011 have lifted tax revenue by €876mln so far in the year or annualized rate of tax increases of ca €1.5 billion. This arithmetic suggests that income tax receipts in Jan-Jul 2011 were around €6,673mln or still below 2008 and 2007 levels.

Adjusting total tax receipts for the above estimate of USC puts total receipts at €18,029 - a level 5.1% ahead of 2010 and 3.53% below 2009 figures. Not exactly a spectacular improvement in the 4th year of the crisis and after 3 years of austerity budgets. And not exactly spectacular improvement given that officially, per our Government claims, we are out of the recession now since Q4 2010.

The Government loves targets, even if the objectives they set are unambitious enough to be able to deliver on them. In this department, we are doing ok. Tax revenues were €263 mln (1.4%) above target. Income tax was €160 mln or 2.2% above target at end-July, but, per DofF own admission, "excluding the beneficial impact of earlier than expected DIRT payments, both in April and July, income tax was a little below target in the first seven months. That said, the underlying performance of income tax in recent months has been encouraging, with the targets for both June and July marginally bettered."

Enough said about targets. Back to data.

Vat came in below 2010 levels at January-July 2011 receipts of €6,399mln against 2010 period receipts of €6,478. The shortfall now stands at 8.07% on 2009 and 1.22% yoy. So as the chart below shows, Vat is trending along the worst year on history - 2010.

Corporate tax revenues were €1,648mln which is a vast improvement of a whooping €23mln (what the Dail spends on expenses, roughly) yoy (+1.42%). Corporation tax is now down 12.57% on same period 2009 which was the best year for this line of tax receipts in 2007-present period.

Excise duties recorded a €101mln (4.05%) surplus in the first seven months of the year relative to 2010, which translates into 0.54% increase on the same period of 2009.

The rest of the tax heads were all over the shop. Stamps improved by 23.9% yoy, but remain marginal and the improvement was due to timing factors. CGT and CAT are both down (and both are extremely marginal in size), suggesting that capital investment in the economy remains on downward trajectory. Customs were up 9.9% yoy - potentially due to increased improting activity in May-June 2011 as MNCs beefed up their stocks of inputs.

So overall picture on tax receipts side suggests:

1. Extremely poor performance on Vat and capital taxes - implying no domestic consumption or investment pickups;
2. Lackluster performance on income tax (ex-USC), with receipts stable around 2008-2009 levels
3. Mediocre performance on corpo tax, despite strong production activity in the MNCs-dominated exporting sectors
4. Transactions taxes running within 2009-2010 performance readings.

Things are, therefore, stable - in a 'the dead can't dance' way.

05/07/2011: Irish Exchequer Expenditure: H1 2011

Previous posts on the H1 2011 Exchequer results covered Exchequer balance, Tax Burden composition, and Exchequer Receipts. This post will cover Exchequer Expenditure side of the balance sheet.

Please note: cross annual comparisons are distorted by the changes in departments compositions and remits. Nothing we can do about this.

Top level numbers for H1 2011.

Agriculture, Fisheries and Food (accounting for 1.8% of the total Net Voted Expenditure - NVE) spending stood at €388 million in H1 2011, down 28.9% on the same period for 2008 and down €79 million or 16% yoy, though all of the savings came from the capital side, with current spending up €87 million yoy (+44%).

Art, Heritage & Gaeltacht (0.5% of total NVE) managed to spend €108 million in H1 2011, down 67.3% on 2008. Spending here is down 68% yoy (saving €158 million) with most of savings coming from the current side, although in proportional terms capital savings are on par with current savings.

Communications, Energy & Natural Resources (0.4% of NVE) spending in H1 2011 was €98 million, up €13 million (+15%) on 2010. Increases in spending took place on current side (+€11 million or 28%) and capital side (+€2 million or 4%). Relative to H1 2008 spending is down 14.9% which is 7th lowest rate of savings amongst the departments.

Community, Equality and Gaeltacht Affairs (0.5 of NVE) - no, don't ask me why is Gaeltacht having itself spread over 2 departments - spent €105 million, down €79 million (-43%) yoy. This time around, most of the savings in volume came from the current spending side, but in relative terms, capital spending is down 77% while current spending is down 36% yoy. Department spending has fallen 53.9% on comparable period in 2008.

Defence (1.9% of NVE) spent €419 million, which is down 13% on comparable period in 2008, making the department 6th lowest saver in the entire voted expenditure set. Department spending was up €4 million yoy with all of the increase accounted for by current spending.

Education and Skills spent €4,066 million in H1 2011 which is €171 million above H1 2010. Capital side increased by €59 million (+58% yoy) and current side was up €113 million (+3%) yoy. The department is the third largest of all Government Departments, accounting for 18.6% of NVE. Overall austerity has resulted in a 4.8% decrease in Department spending through H1 2011 compared to H1 2008, making the level of savings achieved the fourth lowest of all departments.


Jobs, Enterprise, Trade & Innovation (1.5% NVE) spent €336 million in H1 2011, down 48% on H1 2008. Compared to H1 2010, department spending fell €219 million (39% drop yoy) with current spending falling €245 million (-62%), while capital spending rose €26 million (+16%). Much of the capital side increases across the departments is attributable to the timing of spending with previous Government actively delaying paying on capital projects until later in the year. At least, with the current Government, contractors might be getting paid more on-time for their work.

Environment, Community & Local Government (2.6% of NVE) spent €561 million in H1 2011, down 52.8% on H1 2008. Spending was down €200 million yoy (-26%) with capital savings of €119 million (-32%) and current savings of €81 million (-21%).

Finance (2.3% NVE) managed to spend €510 million in H1 2011, down 20.3% on 2008 and achieving savings of a miserly €4 million yoy, with €20 million saved on current spending side and a deficit on 2010 of €16 million on capital side.

Foreign Affairs and Trade (1.6% of NVE) spending of €342 million is down €61 million (-15%) yoy, with €59 million of the savings coming from the current side. Relative to H1 2008, current year performance is delivering savings of 29.7%.

Health (the largest of all departments, with 30.9% of NVE, although Social Protection is coming close second and is bound to overtake Health by year end) spent €6,757 million in H1 2011, up a massive €666 million yoy of which €662 million came from the current spending side. With all of this, Health spending is now down 0.8% on H1 2008. The figures are obviously distorted by the introduction of USC, but as of H1 2011, the department has achieved 3rd lowest rate of savings of all departments.

Another billionaire department: Justice & Equality (4.9% of NVE) had total spending of €1,081 million in H1 2011, up €32 million on H1 2010 (+3%), with deficit coming at €56 million on current side, offset by savings of €24 million on capital side. Department spending is down 12.2% on H1 2008 - 5th lowest rate of savings across all Departments.

Social Protection (soon to be the largest spending department in Ireland but in H1 2011 accounting for 29.8% of NVE) spent €6,517 million - up 10% or €589 million yoy, with €587 million of this increase coming from the current side. Compared to H1 2008, H1 2011 spending rose 49.5% making it the worst performing department when it comes to savings.

Taoiseach (0.5% NVE) came with a bill of €108 million in H1 2011, which was 23.1% above comparable period in 2008. More than that, the department managed to increase its spending on 2010 as well, with cost rising by €20 million (+29%) yoy all of which came from current spending increases.

Transport, Tourism & Sport spending of €593 million in H1 2011 was 187 million down on H1 2010 (-24%) with savings of €240 million achieved on capital side and current side yielding an overrun of €53 million on 2010. The department accounts for 2.9% of NVE and spending here is down 53.8% on H1 2008.

So the top of the line numbers are: in H1 2011 Total Net Cumulative Voted Spending stood at €21,898 million or which €20,547 million were accounted for by current spending and €1,351 million by capital spending. Overall expenditure is now €399 million above H1 2010 (no sign of austerity here, if anything, spending just rolls on at the aggregate) - an overspend of 1.9%. On Current expenditure side things are even more 'boomish' with overspend relative to 2010 at €892 million (+4.5%). Capital took another hit of real austerity with spending here coming €493 million below H1 2010 (-26.8%).
The above clearly shows that while austerity has caused some real pain in specific departments, it has not been successful in reducing total spending. This is even more worrisome, when one recognizes that by now, capital account has been drained with no sizable potential future savings to be achieved on this side. On the current expenditure side, austerity so far has meant taking spending on one side of the Exchequer shopping list and spending it on the other. One way or the other, this is not austerity, folks. It's reallocation of expenditure priorities.

Now, recall, in H1 2011 we spent total of €21,898 million. That is just €804.5 million in savings relative to H1 2008 (or 3.54% improvement) - after 3 austerity budgets!

So what do these figures look like in dynamic setting - month-to-month?
And where do we take money from and reallocate to?
No need for another comment here.

04/07/2011: Exchequer balance: H1 2011

Exchequer results are in for June and in the previous two posts I discussed tax receipts (here) and overall distribution of taxation burden across various tax heads (here). In this post, I will be quickly covering Exchequer balance/deficit for H1 2011.

Overall tax and non-tax revenues came in at €16,744.6 million against €15,298 million in H1 2010 with both tax revenues and non-tax receipts on current side coming upside. However, total voted current account expenditure came in at €20,547 million in H1 2011, up on €19,655 million. This hardly amounts to 'austerity' working (more on expenditure analysis in the later blogpost).

Non-voted current expenditure came in at €3,375 billion, similar expenditures for 2010 over the same period were €3,071 million. Banking measures in H1 2011 accounted for €3,085 million against comparable period 2010 official (see below) figure of zero.

Overall, Exchequer deficit for H1 2011 stood at €10,828.5 million against 2010 figure of €8,887 million. Excluding banking measures H1 2011 deficit stood at €7,743, while excluding banking measures accumulated over 2010 and backed-out to June 2010, the ex-banks deficit for H1 2010 was around €7,590. Note - this imperfectly takes into account variable timing for deficit increases due to banks measures.

Here's the chart:
Again, I am not seeing any dramatic improvements here on 2010 performance.

It is worth noting - remember that department expenditure will be covered in the later post - that national debt interest and management expenses through H1 2011 have risen to €2,501 million from €2,231 million in H1 2010. Thus interest and debt management cost are currently running at 16.36% of total tax receipts.

Through H1 2011 we have borrowed €11,370 million from EFS, €7,178.5 million from IMF and €3,659.6 from EFSF, so total borrowings rose from €7,589.6 million in H1 2010 to €16,653 million in H1 2011. Of the money we borrowed (at more than 5.8% pa), €10,277.5 million is still held in deposits with Irish banks at, oh, maximum rate of ca 1.4-1.5% (see here) implying an annualized cost of this shambolic support for Irish banks to the Exchequer of ca €450 million - oh, about the amount of money the Government is clawing out of the pensions levy?..

04/07/2011: Tax burden composition: H1 2011

A quick post summarizing changes in the overall tax burden in Ireland, based on the latest Exchequer returns.

In Q2 2011:

• Income tax took up 39.52% of the total receipts, up from 28.7 in Q2 2007 and 34.42% in Q2 2010
• Share of VAT in total tax receipts has declined to 33.22% from 35.49% in Q2 2010 and from 34.97% in Q2 2007
• Share of Corporation tax receipts also dropped to 9.32% in Q2 2011, down from 11.16% in Q2 2010, but up from 7.48% in Q2 2007
• Excise taxes accounted for 14.4% of total tax intake in Q2 2011, down slightly from 14.4% in Q2 2010, but up on 13.91% in Q2 2007
• Stamps, CGT and CAT have fallen from 14.06% share in Q2 2007 to 3.63% in Q2 2010 and to 2.64% in Q2 2011.

04/07/2011: Exchequer Receipts: H1 2011

Exchequer receipts are out for June and here are the stats on tax receipts (expenditure and deficit analysis forthcoming later).

Headline figures:

• Income tax came in at €6,038 cumulative for January through June 2011, which obviously includes the new USC. There is no point of comparing this against previous years, so I will include a chart only for completeness. So instead - relative to target: income tax came in above the target by €11 million cumulative for 6 months through June, or +0.2% - not exactly a stellar performance by any possible measures.
• But here's an interesting bit (illustrated in the chart) inclusive of USC, 2011 income tax for the first 6 months of the year is pretty much matching 2007 income tax for the same period (€5,972 million) which had no USC receipts in it.
  

• VAT surprised on the downside, with receipts at €5,075 million or 8.89% below same period in 2009 and 0.92% below same period in 2010. 2010 first six months yielded receipts of €5,122 million. VAT receipts are now running 2.6% below target or some €134 million short.
  

• Corporation tax receipts continued their fall off the cliff, albeit the distance to the bottom seemed to have shrunk somewhat. January-June 2011 corporate taxes came in at €1,424 million, some 11.55% below 2010 figure of €1,610 and some 24.26% below the same period of 2009. Corporate tax receipts are now €116 million (or 7.6%) behind target.

• Excise taxes came in at €2,200 million, up 5.5% yoy and up 2.76% on 2009 period. This means that Excises are now €79 million (3.7%) ahead of target.

Of smaller tax heads:

• Stamps are down 5.02% yoy and down 22.97% on 2009. Put things into perspective, in 6 months through June 2007 stamps yielded €1,696.5 million for the Exchequer. In the same period this year - only €265 million, down 84.38%.

• Capital taxes: CGT fell to a miserly €90 million down from €114 million in 2010 and from €1,046.1 million in the same period in 2007. That's contraction of 91.4% on 2007 figures.
  
• CAT fell off the cliff (despite QNA showing uplift in fixed capital formation in Q1 2011, suggesting that the uplift had little to do with indigenous investment - taxable - and more to do with MNCs - non-taxable), shrinking to €48 million in H1 2011 down from €131 million in the same period of 2010.

• Lastly, Customs came in at €117 million, up 16.3% from €101 million a year ago.

Total tax receipts have therefore increased (again, due to USC) to €15,279 million in H1 2011 from €14,432 million in the same period 2010 (+5.87%), but are down 3.35% on same period of 2009 and are 26.59% below their level in 2007.

Relative to target, Irish Exchequer receipts for H1 2011 are €115 million (0.7%) short of budgetary targets. So no smoking gun there so far, but the risks remain on the downside as economy signals slowdown since May.

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.
   

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.