25/11/2014: Irish Fiscal Council: More of Troika Speak, Less of Original Insight

The Irish Fiscal Advisory Council [an independent body of sort with some relevance of sorts, if only as a 'check' on the Government] has issued its assessment of the fiscal situation in Ireland. Just in time after the Troika review. Unsurprisingly, the Council mirrors the IMF (and the Troika analysis - covered here: http://trueeconomics.blogspot.ru/2014/11/21112014-latest-troika-report-risks-no.html.

Per Council:
"The Government will likely accomplish the important milestone of reducing the deficit to below the 3 per cent ceiling in 2015. The debt to GDP ratio is beginning to fall, albeit from a very high level. At the same time, economic recovery appears to be taking hold and risks to the Government’s balance sheet have subsided considerably as the outlook for both NAMA and the banking sector has improved." They wouldn't notice that debt/GDP ratio and deficit/GDP ratio were both helped quite a bit by the switch to new National Accounts classification in 2014. See Eurostat data here: http://trueeconomics.blogspot.ru/2014/10/21102014-of-statistics-ireland-and.html. Then again, Troika too 'missed' that point, so predictably, everything is down to the miracles of growth (see: http://trueeconomics.blogspot.ru/2014/11/23112014-half-of-irish-growth-miracle.html).

The Council shows some teeth, however, pointing the obvious: "…Budget 2015 reflects a missed opportunity to move the public finances more decisively into a zone of safety by following through on previous plans. The deficit is projected to be more than one percentage point higher in 2015 than could have been achieved if previous plans had been implemented. All else being equal, the larger deficits result in the debt level being roughly €10 billion higher in 2018 than if previous plans had been adopted."

And then there is the risk of pro-cyclicality - the new boggeyman  of European fiscal policy. In this context, "…Budget 2015 was marked by an absence of a well-specified plan for the public finances beyond 2015. Published tax revenue projections assume no change in policy despite Budget commitments to lower taxes in the coming years. Moreover, the Budget spending profiles assume unchanged expenditure after 2015, despite higher figures being set out in the Comprehensive Review of Expenditure 2015-2017 (CER 2015-2017). Expenditure ceilings have been raised again, however, the CER 2015-2017 does not adequately address how well-known expenditure pressures will be accommodated in the coming years."

Oh dear, that stuff is almost entirely Troika-speak and hardly much new. All in, this makes the Fiscal Council report if not outright redundant, at least repetitive. Which might be the point of the exercise, to keep the pressure on in hope that politically-expedient boom and bust spending and tax cutting are not making a return in Ireland ca 2015.

Good luck to all ye, hoping.

22/10/2012: Income Tax in Ireland: a snapshot

Another tax chart (source here) on effective income & social security taxes in various countries:

And so where's Ireland in this? I took KPMG tax calculator for 2012 and... for a person on $100,000 (depending on which exchange rate you take - spot or 3mo average), Ireland scores:

• Self-employed person, single, no children effective tax rate of 40%
• PAYE effective tax rate of 37.5-37.75%
• Average for a single earner tax rate of 38.42%

See for yourselves where that places Ireland.

More on this in forthcoming Village Magazine issue.

05/12/2011: Government Book of Estimates 2012 - latest comic from DofF

So the book of estimates is out pre-Budget 2012 and there are some notable numbers in it. Let's run from the top:

• Table 1 projects Current Receipts of  E38,081mln in 2012 or E1,344mln of 'natural increases' in tax receipts, presumably from roaring economic growth
• Table 1 also projects capital receipts falling by E660mln due to lesser tax on tax (aka banks measures 'returns')
• Table 1 projects increase in total revenue of E683mln to E39,905 - where this will come from, one might wonder. Table 2 shows that all of these increases will come from tax revenues growth - remember, estimates do not include any new measures to be passed in Budget 2012. In particular, DofF assumes that tax revenues will rise 4.13% yoy in 2012. Why? How? On back of 1.3% growth - the rosiest forecast we've had so far? How much do they plan to extract from value-added o get these figures? Suppose economy expands by 2.2 billion in 2012 (ca 1.3%), tax revenue is supposed to grow by E1.41 billion, so 'extraction rate' is over 64%. That is the full extent of our assumed upper marginal tax rate pre-Budget 2012 measures, folks. Either we are worse than France (the highest full economic tax rate) or the DofF estimates are a bit shambolic.

On the austerity side, there are some notable features of the 'estimates':

DofF assumes interest payments on Government debt of E7.488bn in 2012, up on €4.904bn in 2011. That means that we will be spending

• 71% more on payment on our debt, including that to our 'European Partners' than we will be spending on capital investment, or
• 21% of all our tax receipts will be going to finance interest on government debt
• Given projected yield from Income tax of E15.09bn in 2012 (do forget for the moment that this is basically a form of numerical lunacy, not a hard number, as there is absolutely no reason why income tax next year will be at these levels), our Government debt interest bill will account for 49.6% of our entire projected income tax revenue.

Remember, this all is sustainable, per our Green Jersey 'experts' and we haven't even reached the peak of our debt, yet...

And, yes, there's Austerity... after three years of 'cuts' we have:

• Current spending is expected to rise from E48.148 bn in 2011 to E51.233 bn in 2012, so that
• General Government Deficit will reach E16.2 billion or E600 million ABOVE 2011 level.

At last we have our truth - in the numbers of even overly optimistic Government own projections - there is no austerity, folks. There is re-arrangement of spending chairs on Titanic's deck. Painful for many, to be true, whose services and subsidies are being cut, but certainly not visible in terms of actual fiscal balance.

So how rosy are Government figures on those projections side? Government 'estimates ' assume that in 2012 Irish GDP will stand at E162 billion, which is a whooping 4.88% above 2011 levels. Right, someone has been drinking that lithium-laced water that the nation should get per our Buba Doc proposals aired last week - GDP growth in 2012 will be 4.88% nominal per DofF.

Bonkers! QED.

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!

Economics 20/11/10: Irish labour taxes are too restrictive

We often think of Ireland as low tax economy. We also think of ourselves as inhabiting flexible labour markets and enterprising world of work-hungry people.

Here is an interesting angle from which we can look at the labour markets. Suppose the cost of labour for an hour of work goes up 1% - due to an earnings increase or benefits rise. What does a worker get to keep out of this?

The higher the number is, the greater is the incentive to supply labour post wage/earnings or employer social security tax increases. The lower it is, the lesser are the incentives to work in the face of rising earnings or social security contributions.

Ex-ante, we would expect Ireland to see significantly higher returns to workers efforts from rising earnings and/or social security (PRSI) contributions by employers (reduced burden on employees and higher expected future benefits of PRSI funding). This, however, is not true.

Here are few charts from the latest OECD data set - for 2009, so not reflective of the Budget 2010 changes in taxes.

OECD defines the main parameter under consideration as: "Net income is calculated as gross earnings minus personal income tax and employees' social security contributions family benefits. The increase reported [in charts below] represents a form of elasticity. In a proportional tax system the plus elasticity would equal 1. The more progressive the system at these income levels, the lower is the elasticity."

Now, as you look at these charts, remember, the Irish Times crowd love droning on about the lack of 'progressive' tax system in Ireland.

First chart shows single person returns to 1% increase in labour costs with 3 sub-groups identified by their earnings:
AW refers to average wage.

Clearly, single people in Ireland have little incentives to supply more labour in response to an increase in their earnings. Alternatively, we do have a severely progressive system of taxation for labour when it comes to single individuals. Actually, for a single person earning 100% of average wage, Ireland is second to Hungary in the OECD in terms of progressivity of our labour income taxes. That's right - we have second lowest incentives to supply more labour (or in other words, we keep second lowest amount of added cost of labour in our pockets) in the entire OECD. For a higher earners (167% of AW) the picture is not much better - we are actually fourth from the bottom of the OECD league (or 4th highest degree of progressivity).

Now on to families with 2 kids:
Here, we have a slightly improved picture. For a family with 1 earner bringing in 100% of AW, we are ranked 16th in the OECD in terms of incentives to provide more work in return for increased earnings or contributions. For a family with one earner on 100% AW and another on 67% of AW, the same rank is 14th. Progressivity of our labour taxes in all 3 scenarios in the chart above is still above the average for the OECD.

Now on to comparing single person with no children and a family with 2 children:
Doesn't look like there's a great deal of premium to being married in Ireland, does it? Nope. If labour costs go up by 1 Euro, a single person on 167% of AW would keep 74 cents, a family with 2 kids with exactly same combined income will keep 80 cents. Both are worse off in Ireland than their counterparts in 27 countries (single person with no children) and 13 countries (married couple with two earners and 2 kids). Again, much of Irish Times-loved progressivity in either household income taxes.

What if we take lower earning individuals for the above comparison?
Here, the picture changes - average wage earners face much smaller progressivity of tax system than higher earners (notice, this is 'smaller progressivity', not 'smaller burden of tax').

But does having children actually help or penalises working households? Take a look below:
So working households with both parents working and 2 kids are allowed by our tax system to keep less of their higher income than their childless counterparts and single childless earners. That's really does begin to look like a perverse system of income tax 'justice'.

Let me summarise the data in a handy table:
By all metrics and for all categories, Ireland simply qualifies as a country where

• labour income taxation is significantly more progressive (in 7 out of 8 categories of earners it is more progressive than OECD average, 5 out of 8 than EU15 average and 5 out of 8 than advanced economies average)
• labour income taxation is significantly more restrictive of incentives to supply labour in response to higher earnings than the OECD or EU15 average

Not exactly a flexible market with great incentives to work, is it?

Economics 9/10/10: Path to reforms

This is an unedited version of my column in October 2010 Village magazine:

The events of the recent months have clearly shown that the current policies path leads to a continued status quo. This is the sole and unavoidable conclusion currently being reached by all independent analysts and commentators on either side of ideological divide. It is a non-partisan concern that informs the rising tide of discontent within the Fiana Fail and Green parties, recent changes within Fine Gael, positions of all other opposition parties, and indeed the entire electorate – as reflected in the opinion polls.

At this junction, there is no longer any need to enlist numerous factual manifestations of this reality – they are all around us, expressed by politicians and ordinary citizens. The tide of international opinion concerning the prospects for Ireland should the current policies persist has turned against us. The IMF (since April 2010), the EU Commission (since May 2010), markets makers and participants – all have put out challenging assessments of Irish Government official projections for the recovery. Irish banks – far from being repaired by Nama – just keep asking for more taxpayers bailouts with a frightening regularity of a drug addict returning to a methadone dispensary.

It is, therefore, time to challenge the existent policy consensus. It is the time to put forward proposals for reforms, to debate real alternatives and to provide those political parties and individual politicians willing to champion change with new ideas to energise the electorate.

Here is my own set of ideas – the offshoot of the ongoing ‘Manifesto Project’ I have decided to run on my blog.

To preclude any ‘kill the messenger’ objections, allow me to state that the following is just a set of policy reforms proposals that any party or politician are welcome to adopt in part or as a whole and put to the electorate.

Fine print aside, let me outline the backdrop to the policies – the backdrop of the specific crises we face as a nation. The Irish economy has been hit by a Perfect Storm that combines:

• a deeply rooted crisis in public finances;
• a structural collapse of the banking sector;
• an unemployment crisis stemming from the collapse of employment and jobs creation;
• a competitiveness crisis that is not limited to wages and labour costs, but the cost of living and doing business;
• the crisis in the quality and efficiency of domestic services - dominated and restricted by the excessive market power of the incumbent state-owned and state-regulated oligopolies.
  

These crises have been exacerbated by the Government policies since 2008. These policies have saddled ordinary families and individuals (regardless of whether they work in public sector or private sector, employed or unemployed, young or old) with the full cost of stabilizing vested interests and elites. This manifested itself in rising tax burden, falling provision of public services, lack of reforms in banking and public sectors. The resulting devastation of private entrepreneurship and businesses, contracting investment and availability of operating capital, a catastrophic lack of confidence in economy are the corollaries. The accompanying spikes in unemployment and businesses failures, and a hike in precautionary savings are additional manifestations of these.

The current crisis has clearly shown that the corporatist state - where vested interests, including Political, Business, Social and Environmental collude with the state to set economic and social preferences and priorities - is morally, politically and economically bankrupt. I believe that Irish democracy cannot be surrendered to the vested interests, no matter how broadly-based or highly minded they might be.

There are only two ways forward from this status quo. The first is the path we are travelling – the path of a generations-long and painfully deep crisis of stagnation and declining standards of living. The second one is a path of structural reforms aimed at realigning the current political system to serve the interests of the ordinary citizens and residents of this land.

Such a reform is also a disruptive and a painful one. It can only be achieved by creation of an alternative to the existent policies and structures.

In my view, the agenda for reform should champion the rights of ordinary citizens – consumers and taxpayers – to counterbalance existent system that promotes the interests of the vested pressure groups and elites. It must, therefore, include changes to the state political and governance systems, to the principles governing provision of the public services, to the systems of our private markets and, lastly, to the rebuilding of our financial system. For the sake of brevity, I will focus on the first two objectives.

Changes to political and governance systems

The core changes to the political and governance systems must put transparency and accountability principles of governance to the front. This will require creation of automatic systems of disclosure and control that are not subject to tampering by individual office holders. It also requires ending Social Partnership, delegating all authority, and the responsibility, for developing, implementing and monitoring economic and social policies solely to the Legislative and Executive branches of the State.

In terms of transparency, default setting must be public disclosure and unrestricted free access to all data not subject to the secrecy of the state considerations. Sensitive data should be published with exclusion of sensitive information and identifiers, until the time when it can be published in full.

Accountability requires that performance and productivity metrics should be designed and refined through experience for all branches of public sector. All earnings in the public sector should be linked to individual productivity.

Local authorities must be reformed, reducing the overall number of local authorities to, say, 7, covering: West & North West, South, Greater Cork, Greater Dublin, Greater Limerick, Greater Galway and Border & Midlands.

Seanad should be given real powers of the upper chamber and be elected directly by the people of Ireland, with equal representation for each of the 7 geographic region outlined above. Dail should be reformed by reducing the number of TDs and to cover both local and national mandates. The former will preserve a number of seats allocated locally, while the latter will allocate some proportion of seats based on national polls.

Both chambers along with the Executive should accord no privilege to their members that will put them above the ordinary citizens of the state. This will require abolition of unvouched expenses, enforcement of the Benefit-in-Kind principle of taxation and removal of the un-provisioned pensions entitlements.

All state purchasing should be carried on-line, made public and transparent and subject to annual audits by independent external board.

State services reforms should include the separation of provider of services from the supplier of services. This means that the Irish state should aim to be a purchaser of services, e.g. health care and care for the disabled, for those who cannot afford them. But the State should not own service providers. Instead, public services can be supplied by mutual, private for-profit or non-profit providers. Transition to such an arrangement will require significant training and logistics support for current employees.

Higher education should be based on fees set by universities and overseen by the Department for Education. The State should set up (with participation of charities and other private agencies) a number of funds that will provide financial aid to students based on need (with an objective of creating an equal opportunity for all qualified students to undertake studies) as well as merit (with an objective of rewarding real achievement). A further system of state-guaranteed student loans should be set, subject to independent oversight and audit.

The state should focus significant resources on the need to improve and strengthen provision of universal early, primary and secondary education in order to achieve maximum equality of opportunity for the children independent of the social and/or economic status of their parents.

Changes to fiscal systems

There is a need to rebalance the burden of taxation in the economy to deliver on three core objectives. First, the taxation system should be fair, transparent and protected from abuse. Second, it should involve participation from all agents in the economy. Third, it should not attempt to pick winners and leave in its wake the losers.

With these objectives in mind, I would suggest adoption of a flat rate income tax system with single personal standard deduction plus a child allowance, potentially linked to the level of unemployment benefits. All discretionary tax breaks should be removed, including any tax incentives for farming and any other economic activity. Non-residency limits should be set to reflect the needs of Irish citizens working abroad and commuting home – e.g. a limit of maximum 124 days annually to cover all weekends plus standard vacation. A move to a single rate income and corporate tax can also be used to deliver full equalization in taxation between workers, entrepreneurs and businesses.

Existent Byzantine system of indirect taxes and levies is to be simplified with a view that all such charges should be based on user fee principle and be fully ring-fenced to finance provision of services covered and mitigation of adverse externalities (e.g. environmental degradation etc) generated by these services.

There is a need for having strong, but life-time capped, welfare provisions. This will provide a sufficient insurance cover for all able-bodied working age adults in the country to a cumulative maximum of 7 years over the life-time. Provision of welfare supports to those unable to work due to health or family circumstances (e.g caring for a disabled relative etc) should be exempt from life-time limits.

The basic social insurance pension reform should ensure that the elderly are covered by s sufficient safety net, but the working-age individuals are encouraged to privately invest in their pensions.

Wages for politicians and senior public servants are to be tied to the National Disposable Income in order to create a direct link to the overall levels of welfare in the society (including that of the unemployed and socially vulnerable). There should be no bonuses or discretionary pay and all public sector pensions should be converted to a Defined Contribution system with generous matching from the employer.

Government spending should be benchmarked to a specific range of GDP (for example – 35-38%). A balanced budget should be maintained over every 3-year period. This allows for small emergency spending boosts in recessions, but prevents spending sprees before the elections and other abuses of the public funds.

All quangoes, except those with immediate independent oversight authority (e.g FR and Competition Authority) are to be abolished and their functions transferred to the respective departments. Responsibility for governance and management must rest with the Government.

There is a need for a fully transparent tax on land values (LVT) in order to finance public infrastructure investments and provision of local services, including environmental protection and improvements. I would suggest that the revenue from LVT should be split 50:50 between central & local authorities. Local authorities should be allowed to vary their rate of LVT within reasonable parameters. For example, if LVT is levied at 1% pa, the local authority can be allowed to charge between 0.25% and 0.5% as it deems suitable, while the central government will collect 0.5%.


After three years of ever-deepening crises in political, economic, and banking spheres, Ireland now faces a stark choice between two alternatives. We can, as a nation, elect to either follow the status quo path that leads to a stagnation. Alternatively, we can choose to challenge the existent policy consensus to champion the rights of ordinary citizens – consumers and taxpayers.

Economics 28/12/2009: Irish Earners - amongst highest taxed

Ireland now has some of the highest tax rates in the developed world, and this tax burden shows one of the highest rates of progressivity when it comes to the state dipping into higher earners incomes. Table below illustrates (source here):
Note how dramatic is the tax burden for higher earners in Ireland.

Now, give it a thought. We want to build a 'knowledge' economy. The main input into such an economy is individual skills of the employees. This high skills-intensity of production in the 'knowledge' economy means paying key employees more than in the 'dumb' traditional economy, where physical capital takes up much larger share of total value added. In other words, 'knowledge' economy must compete globally for human capital. The higher the quality of the talent, the greater is the intensity of competition and thus, the more important are the tax rates charged on such labour. Our tax rates simply are inconsistent with such competitiveness.

Funny thing is that most of our media - especially the Irish Times and RTE - keep on banging about the need for creating a vibrant 'knowledge' economy, while at the same time calling for higher taxes on top earners in the private sector.

Given that both papers have absolutely no real economics analysts on board, this contradiction is not surprising - it takes a real economist, with a wide knowledge of economic theory and empirical analysis, to understand the complex nature of productivity and returns to various forms of capital. Ex-banks folks and ex-political correspondents simply won't do here.

Economics 09/10/2009: A small win for free trade?

Per our stockbrokers report this am: government commissioned report from the Tourism Renewal Group stated that Minister Lenihan should repeal the Air Passenger Departure tax because of its damage to the tourism industry.

In what was termed, by the Irish Times editorial a 'Gurdgiev-Ryanair' (Irish Times editorial term) campaign (see here) sane economists and industry participants have waged consistent analysis-based factually grounded argument against the tax-driven protectionist scheme that was conceived to support domestic tourism. The scheme, harking back to the dark age of protectionism was aiming to force more Irish people to stay at home instead of traveling abroad. It did not work. Instead, the numbers of Irish people vacationing at home has continued to decline, while the number of foreign visitors to this country has collapsed - tourism is now down 20% in Ireland, while tourism is down under 10% across Europe. More businesses clawed back on international travel amidst recession. All decisions, on margin, were not helped by a completely gratuitous Departure tax.

The Tourism Minister (I am not sure why even have one) now says that the government “will consider its response within the wider context of fiscal sustainability”.

Bloxham's description of the tax effects: "the domestic tourism industry has been disemboweled by a consumer recession, strong euro and this Monty Python air tax... Someone replaced their brain with an abacus to invent this moronic tax (aping the UK) for an island economy dependent on tourism. It requires an adult to stop it. Instead of considering, fiscalising and consulting the Minister needs about one minute to conclude that this regressive tax, that harms lower income passengers most, deserves the boot. It might even re-ignite services to Irish airports, some of which (Cork ?) appear to have been hit by a neutron bomb (undamaged and pristine buildings, no people)."

One fact: the BAA reports a -5.7% year-to-date decline in volume in September at its seven UK airports, compared to 15% decline in Dublin Airport traffic to August 2009 (here).

'Gurdgiev-Ryanair' campaign check-mate to a ridiculous tax policy? One hopes.

Economics 18/09/2009: Idiot's guide to the Galaxy

One of my favorite books in the Universe, The Hitchhiker's Guide to the Galaxy has been surpassed, if only momentarily, by a publisher in Ireland producing this superb Idiots' Guide to Science and Economics. Behold, the front page of today's Indo:
Of course, Mary Coughlan's theory of Relativised Evolution or Evolutionised Relativity and the absolutely unfortunate nature of the venue at which she managed to live up to her well-deserved name 'Calamity Coughlan' are straight out of the chapter 'National Embarrassment Exemplified'. It is a serious public blemish on an otherwise worthy event of IDA launching a serious campaign to attract more FDI into Ireland that I wrote about before (here). No need to detail much here, Indo's article speaks volumes, one can wonder now as to what evolutionary process can lead to the emergence of the species so ignorant of basic knowledge as Mrs Coughlan. One note worth making - the fiasco perfectly exemplifies Kevin Meyers' excellent argument in the same paper today (I might not agree with it myself, but Mrs Coughlan has made his case iron-clad).

But Brian Lenihan's lack of grasp of simple realities of public finances and economics is as breathtaking as Mrs Coughlan's lack of basic erudition. After weeks of being fed drivel of FF backbenchers' and hacks' version of economic ("Nama bonds are not debt", "We will get cheap money from ECB", "ECB supports us" etc), it seems our own Finance Minister got convinced that there is such a thing as a Free Lunch. Per Indo's article here, Lenihan "gave his firmest pledge yet that there would be no tax hikes in the December Budget. And Mr Lenihan challenged anyone who doubted him to "watch my lips"... Mr Lenihan said he was committed to introducing a carbon tax... But he gave his clearest indication yet that the Government would not bring in a property or water tax this year. "I am not aware of any other (new tax hikes)," he said.

Ok, three Indo reporters (including senior ones) failed to actually query the details of this statement the Minister made. But the very fact that Lenihan actually said what he did is a testament to the fact that this Government has no real financial brains in the Cabinet at the time of fiscal and financial crises. None at all.

Per statement itself, Minister Lenihan obviously does not consider introduction of the Carbon tax to be a new tax. Presumably, he lived so long outside the real world, in the world of chauffeur driven Mercs and vast taxpayer-paid perks that he might be under the impression that Carbon tax already exists, so 'introducing' it will not constitute an imposition of a new charge on taxpayers.

The Minister also indicated that he has seen no other tax proposals (other than the Carbon Tax and Property Tax). Has he read his own Commission for Taxation voluminous report? Or has it escaped his field of view as the Lisbon Treaty volume had escaped Brian Cowen's view earlier?

Finally, the Minister has to be living in the surreal world where a €20bn-plus shortfall between tax receipts and liabilities can be covered by something other than taxes. Indo's journos refer to the possibility of €4bn savings on the expenditure side as the means for avoiding new taxes. Have they done a simple sum ever before? Has Minister Lenihan done a simple sum ever before?

Even if the Government does deliver on €4bn in savings, and even if part-year measures announced in April 2009 budget continue through the full year 2010, the entire savings will not be able to cover a quarter of the fiscal spending gap. If the Government commits to fully ending all capital expenditure in 2010 and if the economy grows by 5% in 2010, the expected fiscal gap will still be in excess of €8bn in 2010.

This money will have to be borrowed in the international markets. The roll-over of a vast sea of short-term debt issued in 2008-2009 will have to happen. Is Minister Lenihan really buying the idea that these state liabilities - some €30bn worth already accumulated, plus Nama's €54bn expected plus the ones awaiting NTMA's printing press on the back of long term unemployment increases into foreseeable future can be 'deflated' away at the current rates of spending and taxation without raising new taxes?

Well, only in the world where Einstein authored On the Origin of Species, perhaps?