15/01/2011: Consumer Sentiment in Ireland

Per this week's data release by the ESRI, Irish consumer confidence suffered another set back in December 2010 - updated chart:
Overall, Consumer Sentiment Index declined to 44.4 in December from 48.4 in November, and relative to 53.3 in December 2009. The November reading remains above the all time low in July 2008 of 39., but way below 67.9 local peak achieved back in July last year.

The decline in index was across the board with

• a strongly negative move in the Index of Current Conditions - to 68.5 in December, compared with 76.6 in November, and
  

• Expectations index staying at 28.1, down from 29.4 in November.

According to the ESRI: “The majority, over 70 per cent [would have been nice to put an exact number here, but what can you expect - it's ESRI], of reported that their finances had worsened rather than improved during the past year.”

All thanks for that to Leni & Co for spectacularly reducing middle class' disposable incomes to bail out systemically unimportant banks and public sector elites.

15/01/2011: Family and siblings achievements

Correlations in achievement between siblings in general reflect the impact of family and community on individual outcomes. More importantly, since the siblings achievements are contemporaneous, these correlations can tell us much more about social and family effects than intergenerational correlations, since the latter effects are clearly a function of constantly changing circumstances.

An interesting paper from Swedish researchers (What More Than Parental Income, Education and Occupation? An Exploration of What Swedish Siblings Get from Their Parents, by Anders Björklund, Lena Lindahl, and Matthew J. Lindquist – available here) looked at the determinants of siblings performance in terms of future earned income.

Estimates of such siblings-linked correlations in income, per Björklund et al show that more than half of the family and community influences shared by siblings are independent of parental income. This is a powerful result as it suggests that:

• within-family and within-social group factors determining the outcomes for siblings are more important than much-talked about income poverty; and
• positive effects of the family on raising children can potentially partially (but with strong effect) offset adverse effects of income poverty.

“Measures of family structure and social problems account for very little of sibling similarities beyond that already accounted for by income, education and occupation.” In other words, it appears that the measured aimed at directly influencing the actual form of the family structure (a traditionalist family focus etc) and the core social welfare policy instruments (policies aimed at alleviating social disadvantages) hold little promise in enhancing future performance of children beyond the already recognized income and education components.

Unless, that is, these policies are incentivising more parental inputs into raising children: “…when we add indicators of parental involvement in schoolwork, parenting practices and maternal attitudes, the explanatory power of our variables increases from about one-quarter (using only traditional measures of parents’ socio-economic status) to nearly two-thirds.”

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):

06/01/2011: Exchequer Returns - part 3

In parts 1 and 2 (here and here) I've dealt with some longer term issues relating to the general Exchequer performance figures. In the following two posts I will update specific expenditure (current post) and tax receipts (next post) data.

First, total expenditure:
Two things worth noting here:

• Up until November, total spending side of Exchequer returns was performing relatively strongly, with year on year savings of 4.22%. These savings were significantly reduced in December, with full year savings performance of just 1.55% on 2009.
• The reductions in 2010 have been achieved solely on the back of capital expenditure cuts. Year on year, current spending rose by €261mln or 0.6% in 2010, while capital spending was cut by 14.3% or €990mln
  

You can see the dynamics of reductions over the year in the following two charts:
Combined savings by each department head per quarter end:
Feel free to interpret the above, but what interested me much more is just how stable are the Government's spending priorities over time. To see this, I plotted annual shares of each department head as a percentage of total spend (note - this exercise is not a perfect comparison as departments' responsibilities have changed over time).
The chart above suggests strongly to me that the Government, despite all the criticism it deserves in managing the crisis, has so far elected to cut largely discretionary spending. This is a rational response to the early stages of the crisis, but it is clearly insufficient to deliver stabilization of public finances, let alone their restoration to health.