Economics 4/10/10: Tax receipts & burden

Second installment of analysis of tax receipts. Starting from the top:
As I noted in the first post - there's no evidence of any recovery when it comes to total tax receipts. There is, of course, a significant lag to any recovery translating into tax revenue, especially across the income tax receipts. But the same is not true for capital taxes (investment recovery usually predates employment recovery), VAT (consumption pick up shows up also earlier in the recovery cycle) and a host of other smaller tax heads (excise etc).

Year on year dynamics are also quite depressing:
Not a single core tax head is in positive growth territory, although excise is getting closer to hitting an upside.
In smaller categories, customs duties are posting positive growth - helped by car sales and imports by MNCs. Stamps show the extent of sell-off of shares in August on the back of renewed weaknesses in financials, plus some accountancy moves.

Now to the worrisome picture: tax burden distribution.
Back in the dark ages of the 1980s, PAYE taxpayers carried some 70% of the tax burden. Guess what, we are back to that territory now - all consumption and income tax heads are now accounting for roughly 79% of the total tax take. The Government policy of making taxpayers pay for everything - from banks to Croke Park agreement - is really starting to show.

Illustrated differently:

Lastly, receipts performance against DofF target.
Customs and Corpo are showing significant improvement. Income tax and Vat are poor cousins. Overall, total tax take is getting closer to target, but still runs below the DofF projections. Again, Q4 will be the crucial quarter here.

Economics 4/10/10: Exchequer receipts

High level view of Exchequer receipts paints a continuation to the depressing picture. If there is any stabilization in the economy, this stabilization is yet to be seen on the tax receipts side of things.
Income tax above is tracing neatly below the returns for the last year. Good news, September 2009 slight slowdown was avoided so far. But the real direction of tax receipts on income side is in going to be revealed in the current Q4. Same is true for VAT:
September 2010 VAT receipts are even more disappointing given all the noises about the pick up in retail sales. Going back to school, while yielding a small uptick in volume of sales, clearly was erased in terms of value of sales as deflation in core retail sectors continues.

Corporation tax is struggling to stay above 2008 - a clear sign that economy is still sick:
Core months here are however ahead of us.

Excise and Stamps taxes are almost bang on with 2009, which isn't much of an achievement.

Capital taxes clearly showing no improvement in investment in this economy:

Customs duties moving upside - in part clearly on the back of exporters robust performance so far, plus car imports mini-boom (well, relative to previous years)
Total tax receipts are therefore running well below their levels in 2009:
I never was a fan of the "receipts to target" metrics, primarily because real numbers/levels speak to me much more than imaginary numbers DofF produces our of its excel spreadsheet forecasts. However, to keep up with the fashionable 'economists' from our banks and brokerages - stay tuned for that analysis to follow.

Economics 2/9/10: Exchequer results - tax receipts

So folks, with some trepidation - given the ambitious statements concerning yet another 'turnings of the corner' by Minister Lenihan in today's 'Voice of the Irish Civil Services Gazette' (err... commonly known as The Irish Times) - I awaited the August Exchequer results.

The surprise, I must say, is all my, at least on the tax take side. Things have improved... dramatically... by what I would described as a 'nil change'. In other words, there is no improvement on the tax side.
Total tax take is now moving deeper down relative to 2009 and is nowhere near 'turning around'. It is not even stabilizing on the downward trajectory. Year-on-year total tax take is down 9%. End of July the same figure was 8.2%. Oops...

Income tax and Vat two mega tax heads:
The two are 8.2% and 6.4% behind January-August figures for 2009. A slight improvement on the gap in 7 months to July (8.4% and 6.9% respectively), but not that much of an improvement.

Corporate and excise taxes:
Corporate tax take is now on a trend of erasing the surplus on 2008 accumulated since June. This is bad, folks. In 7 months to July 2010, corporate tax receipts were 13.8% behind 2009 figure. In 8 months to August 2010 these are a massive 24.1% behind. As far as excise tax goes - receipts in 7 months to July 2010 were -3.3% behind corresponding period for 2009, by August 2010 8-months cumulative receipts gap to 2009 period shrunk to 2.7%. Good weather and more partying at home (instead of taking vacations) means booze is being consumed, while euro weakness relative to 2009 means we are buying more of it at home instead of N Ireland.

Next the 'Celtic Tiger Taxes', aka Stamps:
No sign of a serious improvement on abysmal 2009 here either. Poor showing continues with receipts down 18.2% on 2009 in seven months to July and down 11.1% on the first 8 months of the year in August. Let's see what happens in the big boost month of September.

Capital gains:
CGT was down on 2009 in the first 7 months of the year by 44.1% and down on the first 8 months of the year by 42.6%. Marginal gain in relative performance is clearly not enough to bring us even close to the extremely poor performance of 2009.

Summarizing year on year changes in all tax heads:
And to entertain our 'official analysts' favorite pass time: performance relative to targets
One noticeable and real change in monthly returns is the share of the burden that befalls our ordinary incomes:
Table below summarizes:
Nothing really to add to this except this: Minister Lenihan clearly thinks we are seeing improvements on the fiscal side. I see continuously increasing burden of Minister Lenihan's deficits on the ordinary taxpayers and consumers. In my economics books, this is bound to add pressure on Irish growth. Severe pressure.

Economics 2/7/10: Exchequer's sick(ly) arithmetic

Exchequer statement is out today. As usual, for the sake of the markets and the media - right before the closing of the working day. It's either a pint with friends, a dinner with the family, or dealing with Brian Lenihan's problems. Forgive me, the first two came ahead of the third one.

Mind you, not because Mr Lenihan's problems are getting any lighter. They are not. Second month running, tax receipts are under-performing the target. Sixth month in a row, the only saving grace to the entire shambolic spectacle of 'deficit corrections' is the dubious (in virtue) savaging of capital investment spending.

Let's take a look at the details: there was €80 million shortfall in June tax take. All tax heads receipts came roughly in line with the DofF monthly plans, except for income taxes (off €84 million behind expectations).

To hell with 'expectations', though, look at the reality
Tax receipts dipped below down-sloping long term trend line. Which is seasonally consistent. The deviation from the trend line was small, compared to previous 2 years. These are the good news. Total spending is below the flat trend line and roughly seasonally consistent. Given the scale of capital budget savaging deployed this year, this is not the good news. You see, it appears that the Government has back-loaded capital spending while front-loading capital receipts. If that is true, expect serious explosion (hat tip to PMD) of deficit in Autumn. If not,m and the cuts to capital budgets are running at the real rate observed so far, expect mass-layoffs by late Autumn. Either way - things are not really as good as they appear on the surface (more on this 'capital' effect later).

and back to the receipts: H1 2010 so far, income tax receipts are down €227 million cumulatively. Other tax heads are running €76 million above plan. Vat is actually improving, backed by falling value of the Euro and serious cuts in prices by retailers. There is a tendency to attribute this to 'improved retail sales', but in reality most of this 'improvement' is simply due to better weather and smaller savings margins to be had in Newry. Not exactly a graceful cheering point for Ireland Inc... but let's indulge:
€1 billion cut was applied to the expenditure side. Or so they say... Deficit on current account side is now €8.045 billion, up on 2009 €7.212 billion. Vote capital expenditure is down from €1.844 to €2.870 billion. But, wait, in 2009 (well, after Eurostat caught the Government red-handed mis-classifying things) there was €6.023 billion drain on Exchequer 'capital' side from Nama and the banks. This time around, the Exchequer posted only €500 million worth of banks measures on its balance sheet. Something fishy is going on? You bet. Anglo money are not in the Exchequer figures. At least not in six months to June. So things are looking brilliantly on the upside.
Hmm... but what about Anglo? and AIB? BofI? All the banks cash that flowed since January? Well, for now, this remains off-balance sheet. And, there's missing (we actually spent it last year forward) NPRF contribution. Were these two things to be counted, as they were in 2009, the true extent of cuts, the Government has passed through would be revealed. And, fortunately, we can do this much. Take a look at what our cumulative balance looks like to-date, compared with 2008 and 2009.

First - absent adjustments for the banks:
And now, with banks stuff added in:
Notice how all the improvement in deficit to-date gets eaten up by the banks? Well, this is simply so because when we are talking about the improvement on 2009, we are really comparing apples and oranges. Ex-banks in both years, there is virtually no improvement. Cum-banks both years - there is no improvement. But Minister's statement today compares cum-banks 2009 against ex-banks 2010...

Net voted expenditure by departments is running €141 million below expectations for June. Cumulatively, H1 2010 is below expected Budgetary outlook by some €500 million - 2.3% savings on the Budget 2010. Even more impressively, it is now 6.2% behind 2009, 'saving' us €1.4 billion. Not exactly the amount that gets us out of the budgetary hole we've dug for ourselves, but...

I'd love to stop at this point for a pause to enjoy the warm rays of achievement for Ireland Inc. But I can't - it's all due to cuts in capital spending - running some €609 million below Budget 2010 plan for the first xis months of the year. €400 million plus of this comes out of DofTransport budget. All in, current cuts to capital budget represent whooping 36% reduction on 2009 levels. Surely, this will cost many jobs in a couple of months ahead.

And on the other side of this equation - current spending is actually running ahead of Budget 2010 forecasts (actually made in March 2010, so no - DofF has not improved its forecasting powers, it simply is missing targets closer to its own estimation date). And this is true for the second month in the row. Overall, we are now in excess of forecasts by 0.5% and only 1.9% behind comparable figures for H1 2009.

Last few charts:

Now, keep reminding yourselves - the last chart above does not include banks funding in 2010 to-date... Your final tax bill - will. Get the picture?

Economics 11/05/2010: Exchequer figures - no real relief in sight

You have to feel for some of our desperate cheerleading squad of ‘analysts’ who toil for some of our banks and stock brokers. These folks are clutching at the straws trying to find something to cheer about. Case in point – latest data from the Irish Exchequer, which was heralded as showing ‘stabilisation’ and even ‘improvement’ in ‘funding conditions’ and ‘headline deficit’.

Putting aside the fact that most of these analysts have no real idea what these terms really mean (and in some cases, neither do I, for they mean preciously nothing in the real world of economics), the fault in their logic is an apparent one:

They say: ‘Irish exchequer receipts are finally coming closer to the Budget 2010 projections. Therefore, things are improving or stabilising.’

I say: ‘Statements like this are pure bollocks, folks. Just because DofF has finally caught up (somewhat) in its forecasts with reality, does not mean reality is getting any rosier.’

Here is the evidence that I am correct. Forget the Exchequer forecasts, and look at the actual data.
Chart above shows that:

• Irish Exchequer tax revenue in April came in below the downward linear trend established since January 2008, which means that we are still returning tax receipts at below 2008-present average rates. Long term, things are still sliding down.
• Irish Exchequer total receipts fared better than tax revenue, but that’s because the Exchequer has managed to squeeze more out of the likes of the semistates. Don’t be fooled – the semistates do not create their own money. This is just a hidden tax on us all.
• Total expenditure, despite all the fanfare from the ‘analysts’ is heading up, and is now above the trend line again. Which (the trend line) is upward sloping. This means that long term trend is still rising for our public spending, and that we are on a seasonal upper push in public spending.
• Thus, our Exchequer deficit has gone up in April, and it did so at a rate virtually identical to April 2009. Long term deficit is still upward moving and we are now above the long term trend once again.

Translated into cardiology, the patient now has an accelerating erratic pulse reaching beyond the norm, and continuously falling blood pressure. Just as Good Doctors Brian & Brian are talking about discharging...

To see if things are indeed improving (or stabilizing) as our ‘analysts’ suggest, let’s put back to back receipts and expenditures for the last three years in one chart:
Clearly, our total Exchequer receipts (and recall, these are boosted by abnormally higher non-tax revenue) are now below those for April 2008 and April 2009. Indeed, only once so far in 2010 have receipts rose to above corresponding monthly levels for 2008 and 2009 – back in March, when the Exchequer booked some of the backed receipts on VAT, VRT and Excise.
Chart above shows that the Exchequer did indeed achieve some reduction in spending in April 2010. But,

1. Good ¾ of these savings came from reduced capital investment cuts
2. Cumulative savings for the first 4 months of 2010 are so far €1.346 billion, implying an annualized rate of savings of €4.035 billion. Over the same time, cumulative losses in revenue were €990 million, implying an annualized loss in revenue of €2.969 billion.
3. So we are looking at (omitting timing consideration) net savings on 2009 of €1.1 billion. This would be a reduction of just 4.3% out of an annual deficit for 2009, or related to GDP – a reduction of roughly 0.6% of GDP. In other words, all the ‘right decisions’ taken by this Government are currently looking like being able to reduce or 14.3% 2009 deficit to a massively ‘improved’ 13.7% deficit? And that’s assuming that the Anglo support this year will only impact the deficit by the same €1.5 billion as last year…
   

This miserably low level of achievement in our battle to restore Ireland to solvency is, of course, fully visible in the above chart, once one considers the Exchequer surplus performance.

Economics 05/01/2010: Exchequer tale of excesses amidst the hardship

New Exchequer figures clearly show that the crisis is not over!

Before the updated charts, from the first reading of the figures, it is patently obvious that

• while the expenditure side of the Exchequer balance remains barely on target - only 0.5% below the supplementary Budget 2009 estimates (with current expenditure running 0.6% below April 2009 budgeted levels, while capital spending running 0.3% ahead);
• the receipts side continues downward trend: despite an improvement in the shortfall registered in November 2009, December figures still represent the second worst month in 2009.

Further per more detailed breakdown, on the current expenditure side, Community, Rural & Gaeltacht (+0.3% relative to target), Finance (+3.3% on target), and Justice (+1.5% on target) were the three non-social welfare or health-related departments that managed to overspend their targets.

Now, charts to illustrate:
Relative to April 2009 targets, the chart above shows the shortfalls for receipts by main headings. Corporation tax is ahead the forecast - say thank you to MNCs booking more transfer pricing through Ireland this year to reduce their tax liabilities - but this position is still below 5% at the year end.

CGT is shorting the target again after improvement in November. Capital acquisition tax is down for the second month running. Customs show very shallow upturn - most likely due to motor imports flowing to restock for New Year and some replenishment of supplies on alcohol, tobacco and food for Christmas season end.

Year-on-year changes: corpo tax has fallen precipitously and is staying relatively flat now. Total tax is barely up relative to 2008 dynamics, but still below 2008 levels by double digit percentage - it was down 20.8% in November and now improved to down to 19% in December - in yoy terms - the second worst performance in the H2 2009 (it was down massive 21% in May).
In addition to the above trends, VAT down 20.60% yoy in December - an improvement on -20.80% performance in November and the sixth consecutive month of improvements , Income tax flat relative to November - the latter reflecting the lack of end-of-year bonuses. The former shows extremely weak retail sales dynamic. Stamps & CGT - two investment related taxes are obviously improved. After a 26-30% rallies in S&P, European, UK and Irish stock markets - any wonder?


Next, Exchequer deficit - still wider than annual average, though slightly better than in November. The gap between end-2008 borrowing position and today is €6bn - more Bonds! and Pints! for Q1 2010, then.
Deficit in 2009 relative to 2008:Not a pretty sight - December marks second worst month of 2009 in terms of deficit performance compared to 2008. The big question in this picture is whether this does mark some sort of a return to falling deficits? Well, not really - look at the picture above the last one. There was a seasonal improvement in November - due to the inflow of self-employment receipts for 2008 and estimates for 2009, but it was much weaker in 2009 than in 2008 in part due to the exhaustion of the severance packages, in part due to further jobs destruction for contractors. Apart from this, in October 2009 cumulative deficit was €11.7 billion greater than that registered in October 2008. In December 2009, the same figure was €11.9 billion. I wouldn't call this an improvement or an upturn.

Now, expenditure v receipts dynamics for 2009 and 2008:Pretty obvious stuff here. Vertical distance between 2 solid lines is deficit in 2009, vertical distance between two dashed lines is 2008 deficit. Any improvement would require for the solid lines to move closer to dashed ones.

Slight catching up with 2008 in terms of spending in the last month of the year is still not enough to bring spending down to 2008 level. All in (capital and current spending added), the Exchequer burned through an impressive €60 billion in 2009 - up from hardly insignificant €55.7 billion in 2008. But on receipts side, no improvement is visible. Actually matters are getting worse, with total 2009 receipts (capital and current) adding to less than €35.3bn while 2008 receipts came in at €43.1 billion.

Total tax receipts are now at €33.4 billion. Now, that is - oh miracle! - bang on with Budget 2010 estimate. DofF also predicted a General Gov Balance of €25.261 billion and it came in at €24.641 billion, or €620 million short of the 'forecast'.

Are we supposed to be impressed? Not really - these 'forecasts' were made less than a month ahead of the Christmas break. When one looks back -

• in April 2009DofF forecast a deficit of €20.35 billion. My forecast was €23.35-24.225 billion (see here)
• in February 2009 (here) DofF projected "budgeted expenditure to be in the region of €49bn and receipts in the region of €37.7bn" and deficit of €17.98bn. My forecast then suggested that exchequer tax receipts will add up to €33.6bn for 2009 for a General Gov deficit of €23bn.

Now, I do not have a massive forecasting department staffed with highly paid civil servants and tea/coffee/biscuits deliveries twice daily. I am not even being paid to do any forecasting at all. Per DofF own staffing review, the forecasting powers unleashed by the department on the economy are costing taxpayers a mint.

Their and my error margins for 2009 Deficit estimates are:

• Dof F: 17.4% miss in April and 27.03% miss in February;
  
• my: 1.69% miss in April and 6.65% miss in February.

But you do not have to be an Einstein to see that things are not improving, folks. The is no pulse and the patient has flat-lined. Full stop. Have April Budget been successful in delivering stabilisation of the budgetary dynamic? Not really. Stabilization would imply that we would trend along with the 2008 dynamics of the deficit starting with May 2009. Chart below shows this not to be the case:
Overall, some observers have argued that there is a substantial improvement on Budget 2010 targets. Well, of course there was. The problem here is that one cannot willingly adopt targets that suit one argument. April 2009 set the benchmarks to deliver and by these benchmarks, 2009 turned out to be worse than projected on revenue side. 3.9% worse or cool €1.357 billion - more than double the net savings announced from public sector pay adjustments in Budget 2010.


PS: Amidst all this talk from banks and brokerage economists about 'improving' Exchequer outlook based on 'too pessimistic DofF projections', my fear is that the Government is being prepped by the DofF (via severe overshooting in the Budget 2010 forecasts) to claw back on some of the cuts planned for 2011. In other words, the DofF might be readying to make a call in the beginning of H2 2010 to cull the cuts if returns shows 'improvements' on its own excessively pessimistic forecast targets. Then again, they might be not pessimistic enough...