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.

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.

03/03/2011: 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):

Economics 2/12/10: Exchequer returns - Burden of taxation

Let's take a quick look at the tax burden incidence as per latest Exchequer results.
Proportionally, the burden of taxes paid continues to rise (year on year) for Income Tax, VAT (although VAT burden increases have eased a little bit) and Excise Tax. The burden has been falling for CGT and CAT, Stamps and Customs. It is flat for Corporation Tax.
This goes back to the arguments I made recently - no matter whether it is the Exchequer who assumes new debt, or the banks (under the Guarantee and protection extended to them by the Exchequer), the taxpayers are the ones who will be on the hook to repay it all.

Economics 2/12/10: Exchequer returns - tax receipts

The mixed bag - aka Irish economy - story of the Live Register from yesterday is continuing into today. The Exchequer results for November are being heralded by many 'official' analysts as a sign of significant improvement in the economy.

Are they? Really? Let's update my charts on the matter.

Top level view: tax receipts through end of November totaled €29.489 billion in 2010. This is some €470 million of 1.6% ahead of the DofF projections. Happy times? In 2008 they were €38.86 billion and in the "terrible year" of 2009 they were €30.75 billion. So the good news is that we are still in the worst year of the crisis when it comes to total tax receipts.

I guess I am just not buying the story of 'close to target' being a net positive signal for the economy. It might be a net positive for the DofF - who's forecasts are now accurate (after 3 years worth of trying). But for the rest of this economy, things are worse today - as tax revenues go - than they were a year ago.
Now, November is the month when tax receipts accelerate dramatically. Good news, this year was no worse in the rate of increase than last, even a little better. Bad news, acceleration from October to November has been slower in this year than in 2008. Glass is half full on dynamics.

For 11 months of 2010, all tax heads, except for income tax are on target or ahead of target. Again - good news for DofF forecasters, but not great news for the economy.
You can see how both income tax and VAT are performing poorer in 2010 than in 2009 and 2008. I'll summarize all these differences in a table below. But for now - all other tax heads in charts:
Corporate tax is performing 'spectacularly' better than target +19.1% - sizzling. But year on year it is still 2.2% lower in 2010 than in 2009 and a whooping 26.3% below the levels of 2008. Errr... you see, targets don't really matter, reality does. Ditto for Excise tax: down 0.2% on 2009 and 19.9% on 2008.

Next, then:
Stamps perform better in 2010 than in 2009 so far. This is the one tax head of two that has shown an improvement year on year - plus 7.55% on 2009 and yet still -43.8% on 2008.
CGT... oh, what the hell - you can see, the story is the same as for all other tax heads save for stamps and customs.

Here's a summary table: performance to target (the DofF Delight special):
Charted over the year above.

Now, relative to previous years (the Real McCoy):

Year-on-year rates of change in charts now:

As noted before: with exception for two, by now pretty minor tax heads, accounting for just 2.9% of total tax revenue (Stamps) and 0.7% (Customs) of total tax revenue, everything else is performing worse this year than in 2009. I guess the only good news is that they eprforming not as badly as they could have were the things to completely collapse. Some solace then.

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.