3/8/17: The tale of Irish tax receipts tails

My article for the Sunday Business Post  on the latest trend in the Irish Exchequer receipts and how it stacks up against Budget 2018 prospects for tax cuts. Link here: https://www.businesspost.ie/opinion/not-much-powder-left-honeymoon-budget-2018-394678.

5/1/2012: Irish Exchequer Results 2011 - Tax Receipts

Irish Exchequer returns for 2011 are in and there has been much in the line of fireworks celebrating the 'strong' results. Alas, these celebrations are revealing more about the nature of the Exchequer figures analysis deployed by the Government spin doctors than about the real dynamics in tax revenues and spending reforms.

In this post, let's take a look at the tax performance over 2011.

Income tax receipts came in at the grand total of €13.798 billion this year, 22.4% up on 2010 and 16.6% up on 2009. Alas, the gross year on year gain of €2.522 billion achieved in 2011 is accounted for by re-labeling of the former health levy into income tax component. In 2010 the state collected €2.018 billion worth of health levies receipts which were not classified as a tax measure. This year, it was classed as such, and although we do not know just how much of the health levy has been collected, netting out 2010 receipts for this revenue head out of the 2011 tax receipts leaves us with an increase in income tax like-for-like of closer to €500 million year on year. And these net receipts would imply income tax still down on 2009 levels.

Overall, income tax was down €327 million on target set in Budget 2011 - a shortfall of 2.3% - not dramatic, but hardly confidence-instilling. 

The chart below illustrates trends over time, but one has to keep in mind that 2011 figures are gross of USC (and thus Health Levy receipts).

More revealing (as these compare like-for-like) are VAT receipts:

As the chart above illustrates, VAT receipts came in at €9.741 billion in 2011, down 3.57% on 2010 and 8.71% on 2009. Now, we are talking some real numbers here. While income tax 'improvements' were in reality very much marginal, VAT deterioration is very significant. VAT receipts are down 4.8% or €489 million on 2011 target and the receipts are off €360 million on 2010 and €929 million on 2009. VAT receipts are running €4.76 billion behind, compared to 2007 levels. 

Corporation tax is shrinking. Official numbers show Corpo receipts are at €3.52 billion in 2011, down €404 million on 2010. These include €261 million in delayed receipts, so year on year Corpo receipts are down really €143 million. This might look small, but for the economy that is allegedly 'recovering' the dynamic is poor. In percentage terms, Corporation tax receipts are off 10.29% yoy and 9.74% on 2009. Compared to 2007, corporate taxes are down €2.871 billion (disregarding the late receipts).

Relative to target, once December delayed payments are factored in, Corporation tax has fallen short of the projections by €239 million. In overall official terms, the tax is down €500 million on traget (-12.4%).

Another big tax head is the Excise. This came in exactly at the same level as 2010: €4.678 billion. Excise receipts are down just €25 million on 2009, but significantly lower - by €1.16 billion relative to 2007. Excise taxes are now basically in line with Department projections for Budget 2011. 

Stamps are up, but this is solely due to the pension levy introduction. Leve of Stamps receipts in 2011 reached €1.391 billion, which is €431 million ahead of 2010 and €461 million ahead of 2009. But once we factor out pension levy receipts, Stamps are actually down €26 million on 2010 and just €4 million ahead of 2009 levels. Compared to 2007 Stamps are down a massive €2.25 billion once pension levy is accounted for. And Stamps are down on target as well - by some €21 million.

When it comes to capital taxes, combined CAT and CGT receipts came in at €660 million or 12.9% ahead of 2010 receipts, although still 17.1% down on 2009 levels.

Both tax heads combined were bang-on on target.

So overall, of top 5 tax heads, 3 were behind the target despite the fact that Income tax included reclassification of tax revenues under USC, one was bang on target and one was ahead of target once temporary pensions levy is added, but behind target when this is netted out. In a summary, 4 out of 5 tax heads have underperformed the target and one came in at virtually identical levels to target. Where's, pardon me, the fabled 'improvements' and 'stabilization' in Exchequer revenues that Minister Noonan has been talking about?

Overall tax revenue stood at €34.027 billion in 2011, which is 7.16% ahead of 2010 and 2.97% ahead of 2009. However, if we are to correct for reclassified Health levy receipts and temporary pensions levy receipts, tax revenues for 2011 were at €31.552 billion, or 0.63% below those in 2010. tax rates went up, tax revenues went down, folks. Not what one would term an improvement in performance.

Even using dodgy apples-for-oranges accounting procedures deployed by the Government, tax revenues are down 2.5% on the Budget 2011 target. How on earth can anyone claim this to be 'stabilizing' performance or an 'improvement' defies any logic. 

Let's do the sums: 

• 2011 total tax revenues were €873 million behind Budget 2011 projections. These included non-tax revenue of at least €2 billion (Health levy) that was re-branded as tax revenues this time around, plus €457 million hit on pensions (not in the Budget 2011) and a delayed set of corporate returns of €261 million. So overall, tax revenues are down on target not €873 million, but €1.069 billion. 
• At the same time 2010-2011 outrun surplus claimed by the DofF at €2.522 billion in reality is a revenue gain of just €308 million.

That means that the Exchequer revenues side performance was really surprisingly unimpressive.

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.

07/10/2011: Tax returns - truth and DofF-ised surreality

In his statement, following the publication of Exchequer returns for September (here), Minister for Finance, Michael Noonan stated (emphasis mine): "Tax receipts in the period to end-September were 8.7% above the same period in 2010 and slightly ahead of expectations. Although the minor surplus is due to some favourable timing factors and receipts from the Pension Levy introduced to fund the Jobs Initiative, it is encouraging that overall tax revenue is growing again. Individual tax-head performance has been mixed. VAT receipts are weaker than expected but income tax is performing well." The Minister further positioned improved tax and fiscal performance within the context of Irelands 'return to economic growth'.


Note: there is an excellent post on this topic available from Economic Incentives blog (here), although our numbers do differ slightly due to my numbers resting on explicit model for Health Levy revenues and some rounding differences. In addition, my post focuses on comparatives, including to pre-crisis dynamics and returns. I also attempt to cover slightly different questions as outlined below. Furthermore, Economic Incentives blog post also covers the issue of distorted timing on DIRT payments in April and July that I omit in the following consideration.


Another note: over the last 4 years we became accustomed to brutish spin from the previous Government when it comes to painting the tape on Ireland's 'progress' and 'recovery'. The current Government, however, is much more subtle in presenting the positive side of the 'recovery' and Minister Noonan's statement quoted above shows this. However, the real issue here is that in the name of transparency, DofF should be reporting actual figures that are comparable year on year. It's their job and they are failing to deliver on it.


The above statement, of course, raises the following three questions:

1. Did Ireland's tax revenue performance for 9mo through September deliver a significant enough change on 2010 and/or pre-crisis performance to warrant the above optimism?
2. Is Ireland's tax revenue performance attributable to 'return of growth'? and
3. Are the overall tax revenues really 'growing again' in any appreciable terms worthy of the Ministerial claim?

Table below summarizes the data on tax revenues through September 2011, including adjustments to tax heads that reflect:

• USC charge conversion from Health Levy to Income Tax measure: prior to 2011, health levy was collected within PRSI contributions, without being classified as Income Tax. In 2010, the levy collected amounted to €2.02bn for the year as a whole. Using distribution of income tax revenues across months for 2008-2010 average, I estimate that 65.9% of Health Levy would have been collected through September 2011 and account for this in the Income Tax ex-USC line. This is an imperfect estimate that errs on the downside of the overall USC impact as it disregards changes to the Health Levy rates & bands applied. In other words, my estimate assumes that USC incorporated into Income Tax today carries within it unchanged revenues from the Health Levy as per 2010.
• Pensions levy of €457mln is aggregated in the official figures into Stamp Duty returns and the table below provides for this in the line on Stamps ex Pensions levy. Note that the target for Pensions levy receipts was set at €470mln, so there is a shortfall on the target of €13mln which I do not account for in the relevant figures, making my ex-levy estimates erring on cautious side.
• Lastly, the total tax revenue ex-USC Health and Pension Levies incorporates the €122mln delayed payment

So let me run through the above:

• Income Tax revenues, once the Health Levy is factored out (revealing better comparatives to 2010 and before) are up 7.65%, not 25.7% in January-September 2011 compared to same period of 2010 that the DofF claims. Compared to 2009, Income tax revenues are up just 0.6%, not 17.5% implied by DofF numbers. See any significant uptick in the economy feeding through to significant rise in tax revenues? Well, stripping out tax rates increases and tax bands widening, I doubt there is anything but continued contraction in like-to-like revenues here.
• VAT is still tanking compared to 2010 (-2.0%) and to 2009 (-7.7%) as correctly reflected by DofF data. And VAT revenue gap is widening from H1 2011 to Q3 2011 as compared against 2010.
• Corporation tax revenue is falling - down 6.1% on 2010 and down 21% on 2009 and that is amidst historically record levels of exports! So if you know some evidence that 'exports-led recovery' is taking place, it is not showing up in the Exchequer receipts.
• Excise is down 1.4% on 2010 and 2.5% on 2009 and that dynamic is worsening from H1 2011 to Q3 2011.
• Stamps are down 1.4% once we factor out the hit-and-run on Pensions, not up 58.7% as DofF claims.
• CGT, CAT are down in double digits
• Customs are up as DofF shows.
• So total tax revenues are up 1.17% in comparable terms to 2010, not 8.7% as DofF claims and relative to 2009 total tax receipts are down 5.37%.

Relative to target figures are also severely skewed by USC reclassifications and Pension Levy receipts and show, in the end, that in comparable terms we are not delivering on targets. Of course, USC reclassification is reflected in the targets, so without netting out USC, total tax receipts are 0.69% behind the target as set in the Budget, not 0.7% ahead of it as DofF claims. And that is inclusive of timing error of €122mln and excluding USC reclassification change.

So what about our cumulative 'progress' since the crisis on-set in delivering on fiscal stability? Let's compare each year achievements to 2007 levels of total tax revenues:

Again, per table above, the entire set of draconian, growth-retarding tax hikes that have hit households since 2008 delivered virtually no improvement on the crisis dynamics. The shortfall on tax revenue for 9 months January-September period relative to same period pre-crisis (in 2007) in 2010 was €9,290mln and it currently stands at €9,030mln - an improvement of €260mln or less than €30mln per month!

Can anyone still claim that Ireland's public finances are on track to achieve some meaningful targets whatsoever? As Seamus Coffey (in the blog post linked above) points out: "I must say that I cannot see the justification for greeting the figures in such glowing terms" as those used by Minister Noonan and the DofF. I agree.

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.

03/05/11: Exchequer receipts for May

Exchequer returns for May are in and the results are pretty much in line with everyone's expectations. On the surface things are improving, but in reality, our fiscal problems are not going away.

Here's the analysis of receipts (analysis of expenditure will follow in a separate post):

• Income tax receipts came in at €5.061bn inclusive of the USC, which is 9.2% above 2009 levels and 19.93% above 2010 level. How much of this is due to USC and how much was substituted away from other sources of revenue, such as health levies etc.

• VAT receipts offer a more direct comparative - VAT receipts stood at €4.867bn in May 2011 slightly down on €4.873bn a year ago.
• Corporate tax receipts - another gauge of economic activity, this time dominated by MNCs - are down: May 2011 level was €599mln, as opposed to €748mln a year ago. Thus Corporate tax receipts are down 19.92% on 2010 and 47.41% on 2009. For comparative purpose, May 2008 receipts were €1.357bn - more than double 2011 levels, while 2007 receipts were €1.484bn.
  

• Excise tax receipts came in at €1.791bn in May, slightly up on May 2010 when they reached €1.704bn, the variation of 5.1% yoy, the receipts are also up on May 2009 - by 2.11%.
• Stamps continue unabated decline - down to €235mln in May 2011 or 3.69% yoy and 20.07% on 2009. To put things into perspective, May 2007 stamps were €1.438bn.

• Capital taxes are really taking a serious dive. CGT is down 25.23% year on year and 56.09% on 2009, reaching just €83mln in May 2011. CAT is down 66.09% yoy and 63.21% on 2009 at €39mln in May 2011. Combined CGT and CAT stood at €1.168bn in May 2007, €744mln in May 2008, €295mln in May 2009, €226mln in May 2010 and €122mln in May 2011. Ouch - that global capex boom of 2010 has clearly passed Ireland untouched and this can only mean one thing - we are into the 4th year of collapsed investment now.
• Lastly, customs duties stood at €98mln in May, 18.1% up yoy

• Total tax receipts, therefore, came in at €12.795bn in 5 months through May 2011. This is 5.6% above the level of tax receipts for the same period of 2010 and 5.43% below 2009.
  

• The Exchequer deficit for the five months through May 2011 now stands at €10.231bn inclusive of €3.060bn promisory notes capital injections to INBS and Anglo in March. May 2010 deficit was €7.867bn (ex-banks) and 2009 deficit for the period was €10.588bn.
  

So on the net, tax receipts suggest to me that economic activity has stalled. All comparable tax heads across years relating to economic growth - corporate tax, VAT, capital taxes - are performing either in line with 2010 or below. The only significant increases in tax heads are where new taxes were implemented and some of these are in effect transfers from non-tax receipts side, implying that increase in tax receipts via USC, for example, includes transfer of health levy which has an effect of increasing expenditure side.

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

Amended

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

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

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

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

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

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

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

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

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

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

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

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

So

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

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

Here is the table of calculations:

09/01/2011: Exchequer returns - Part 6

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

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

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

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

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

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

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

No comment needed!

09/01/2011: Exchequer returns - Part 5

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

First by tax head:

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

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

08/01/2011: Exchequer returns - part 4

Corrected - hat tip for an error to Seamus Coffey.


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

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

Again, the main headline picture first:

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

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

Relative to 2009 and 2008:

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

Here are few charts by main tax heads:

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

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

Dynamics year on year:

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

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

Table below summarizes the above point:

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