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 2/7/10: 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 03/07/2009: Exchequer returns

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

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

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

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

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

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

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

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