15/07/2011: Irish electricity prices and subsidies

Some interesting data on electricity prices within the EU - the latest is now available from the Eurostat, covering H2 2010. Keep in mind, between 2008 and 2010 we have experienced the largest deflation of overall consumer prices in the Euro area.

In terms of household prices for electricity, 2010 H2 price in Ireland was €0.1875/kWh up on €0.1855/kWh in H2 2009 and down from €0.2033/kWh in H2 2008. Back in H2 2008, Ireland ranked as the 6th most expensive electricity market for households in EU27, plus Norway, Turkey, and Bosnia & Herzegovina (let's call these EU27+3 for brevity hereinafter). The ranking improved to 7th most expensive in H2 2009 and to 9th in H2 2010. Chart below (arranged in order of increasing cost for H2 2010) illustrates.
Small, but progress: over 2 years overall decline was 7.8% in average prices.

Next, the cost of electricity for industrial users: In H2 2010 Irish electricity prices for industrial users averaged €0.1131/kWh down from €0.1419/kWh in H2 2008 and down on €0.1175/kWh in H2 2009. So the decline in the industrial electricity prices over the same period of time was almost 3times larger than for households - 20.3%.
Why? One reason - taxes. Our Government, incapable of creating a level playing field for investment and entrepreneurship has made a conscious choice to shift tax burden from the shoulders of producers/employers onto the shoulders of employees/households. Hence, as with income tax and other taxes, business taxes are kept lower for electricity than for households.

Before taxes are added, Irish household electricity cost was 0.1629 in H2 2010, which was 44.9% above the comparable pre-tax price for industrial users. Now, suppose this premium was justified by higher transmission costs to the households. And do note that Ireland and France are the only two countries that do not report break down of final prices by generation and transmission. For all other countries, network transmission costs account for about 42.15% on average of the total pre-tax price of household electricity in H2 2010. But here comes a tricky thing. After taxes are factored in, final price premium for electricity paid by households over and above industrial users rises to 65.8%.

What's the 20.85% tax wedge on the premium about? Most likely - a subsidy from the households to industrial users, cause, you know, to be competitive we have to charge someone to subsidise someone else... Although the subsidy is a sort of Pyrrhic victory, you see, since even with this transfer, Irish industrial users face the 6th highest electricity tariff in the EU27+3 in H2 2010, same as in H2 2009, but an improvement on the 4th highest in H2 2008.

Let us say thank you to the Social Partners and CER who work this hard protecting our consumers' interests.

12/07/2011: Irish Tax Rates in International Perspective - Part 2

More tax comparatives, courtesy of OECD dataset. Note, these refer to 2009 tax returns.

In the previous post (here), I provided some assessments of the overall taxation burden in Ireland compared to EU27, plus Norway, Israel and Switzerland. Now, let's look at components of the total taxes.

First - taxes on production:
What this chart above tells us is that we are not distinct from the sample average in terms of our taxes on production expressed as a function of GNP, while we are below average when expressed in terms of GDP:

• Total production and imports tax revenues in Ireland stood at 14.0% of GNP and 11.5% GDP in 2009. Sample average stood at 13.1% (median 13.0%) and +/- 0.5 STDEV band is (11.0, 14.4). So Irish taxes on production and imports as a share of GNP were above sample average. Again, for comparison : Switzerland was at 6.8% of GDP, while Sweden at 19.0%.
• Total production and imports tax revenues are broken down into Taxes on Products, and Other Taxes on Production. Taxes on Products in Ireland yielded 12.4% of GNP and 10.2% of GDP against sample average of 11.6% (median 11.3%), with +/- 0.5 STDEV band around the mean of (10.6,12.7). Again, Irish tax yields here were within the band when expressed in terms of GNP and below the mean when expressed against GDP. Other Taxes on Products (other than Vat, Import Duties and direct taxes on products) accounted for 1.3% of GDP and 1.6% of GNP - against the mean of 1.5% and the +/- 0.5 STDEV band of (0.9,2.1). Neither GDP nor GNP comparative here was out of line with the mean.
• Taxes on Products mentioned above can be further broken down into Vat, Taxes & Duties on Imports (ex-Vat), Taxes on products ex-Vat & Import taxes. VAT in Ireland in 2009 accounted for 6.4% of GDP and 7.8% of GNP. Sample average here was 7.3% with +/- 0.5 STDEV band around the mean of (6.6,8.0), median of 7.4, which means that Irish Vat receipts were in line with the sample average in terms of GNP, but below the mean in terms of GDP. In terms of Taxes on products ex-Vat & Import taxes, the same picture holds. In terms of taxes and Duties on Imports ex-Vat, Irish receipts were above the mean (statistically significantly) for both GDP and GNP measures.
  

Next, Irish Times / ESRI / Trade Unions' favorite taxes on Income and Wealth:
Remember, we allegedly have very low taxes on these and more needs to be extracted out of the 'Irish rich' :

• Total current taxes on income and wealth in Ireland stood at 10.7% of GDP and 13% of GNP. This compares against the sample average of 11.9% of GDP (median of 10.8%) with +/- 0.5 STDEV band around the mean of(9.3, 14.5). In other words, our taxes were slightly (but statistically insignificantly) above average in terms of GNP and also slightly (and again statistically insignificantly) below average in terms of GDP.
• The above can be broken down into Taxes on Income, and Other Current Taxes. Taxes on income yielded 12.5% of GNP and 10.3% of GDP. Both are within sample average range: sample average was 11.3%, +/- 0.5 STDEV band around the mean was (8.8,13.8) and median was 10.4%. Other current taxes were small at 0.4% of GDP and 0.5% of GNP, but also within the range of the mean of 0.6% of GDP.
• Capital taxes came in within the mean range in terms of both GDP and GNP comparatives.
• Total income tax related receipts and capital taxes accounted for 22.4% of GDP and 27.2% of GNP in Ireland in 2009. The sample average was 25.2% and the median was 24.4%. +/- 0.5 STDEV band around the mean was (22.0, 28.5), which means that our income and wealth taxes were solidly within the range of the mean for both GDP and GNP measures. An interesting coincidence - Swiss and Netherlands' taxes in this heading were bang on identical as a function of GDP to ours.
  

Social Contributions taxes:
Now, keep in mind that social contributions are meant to pay for social protection services. For which we, in Ireland, should have lower demand than in other states of EU due to younger population, but the demand on social welfare side does offset this due to a spike in unemployment. Social protection taxes in Ireland have also been dramatically increased in Budget 2011 - not reflected in the data above.

• Social Contributions is the largest component of the tax receipts here, with Irish contributions accounting for 7.0% of GNP and 5.8% of GDP. The mean was 10.6 and the median 11.2, while +/- 0.5 STDEV band around the mean was (8.7,12.5). This means Irish Social Contributions overall were below the mean in terms of GDP and GNP.
• Let's take a look as to why. Our Employers' contributions (at 3.3% of GDP and 4.0% of GNP against the mean of 6.3% and band of (4.9, 7.7)) fell short of the mean in terms of GDP and GNP. The same was true for our Contributions by self- and non-employed (o.2% of GDP and GNP against the average of 1.1% with the median of 0.7% and the band of (0.6, 1.6)).
• The above 'below average" performance was offset slightly by the Employees Contributions which came in at 2.3% of GDP and 2.8% of GNP against the mean of 3.2% with the median of 3.1% and +/- 0.5 STDEV band around the mean of (2.4, 4.1). In other words, our Employees Contribution is within the average for GNP metric, but below the average for GDP metric.

So now on to the overall tax burden in this economy. As highlighted in the previous post, our total tax revenue stood at 35.9% of GNP and 29.6% of GDP. The average for the sample was 36.5% against the median of 35.9%. The +/- 0.5 STDEV band around the mean was (33.5, 39.6) which means that our overall tax burden

• expressed as a function of GNP was bang on with the median, and statistically indistinguishable from the mean;
• ex pressed as a function of GDP was statistically significantly below the mean.
  

Again, folks, the data above shows that by virtually all comparisons, we are a country with average tax burdens - not a low tax economy.

11/07/2011: Real value of the Euro and Irish trade

A new paper from IMF looks at the effects of Euro currency valuations and the effect on competitiveness-trade links for trade within the Euro area and for trade outside the Euro area. The study, authored by Tamim Bayoumi, Richard Harmsen and Jarkko Turunen and titled Euro Area Export Performance and Competitiveness is available from the IMF as a working paper from June 2011, IMF WP/11/140.

The main issue assessed is: "Concerns about export growth within the euro area peripheral countries due to a lack of competitiveness within the euro area are a key policy issue."

The main results are:

1. Long-term price elasticities for exports within the euro area are at least double those for exports outside euro area. In other words, exports outside the euro area are much less responsive, in the long term, to price changes than exports within the euro area. Which, of course, is good news for countries with diversified direction of exports. Ireland is a relatively good performer here, as we re-exports to the US, UK and as our exports to the rest of the world are also growing.
2. (1) above means that traditional real effective exchange rate indexes may overstate the effectiveness of euro depreciation in restoring exports growth in the euro area periphery. Specifically, the study shows that Real Effective Exchange Rate metrics of competitiveness yield highly volatile effects on countries exports. Wholesale Price Indices-based measures provide a better metric for competitiveness within the Euro area and poorer metrics for competitveness for exports outside the euro area. Unit Labour Cost-based competitveness metrics too perform best for trade within the euro area, but are signifcant performance metrics for outside the euro area exports as well. (Note - in my own analysis on this blog, I use consistently only ULC-based metrics). Finally, CPI-based metrics are yeilding totally counter-intuitive results and represent the poorest metric.
3. So, per (2), the pace of deterioration in exports due to appreciation of the euro, depends on the measure of relative prices used.

In particular, the four REER indicators for the peripheral countries "give only partial support to the much-discussed view that external competitiveness deteriorated significantly since the adoption of the euro became likely enough that interest rates started to narrow":

• In Ireland, the CPI-based REER has appreciated by about 20 percent since 1995, while the WPI- and ULC-based REERs have depreciated by about 20-30 percent over this time period.
• Portugal shows similar divergences.
• While Italy’s competitiveness does appear to have eroded, the size of this effect is, frankly, anyone’s guess—while the CPI- and WPI-based measures show only modest appreciation since 1995, the ULC- and XUV-based indicators have appreciated by about 50 and 110 percent, respectively.
• The data for Greece and Spain show a more consistent story, involving steady appreciation of some 10-40 percent on all four measures.

You can read the charts below just as you read my charts on Harmonized Competitiveness Indicators: higher values mean bad things. Higher REERs in the second figure reflect export-related REERs for wthin and outside the Euro area trade.

Figure 1. Real Effective Exchange Rates in Euro Area Countries, 1995 to 2009 , Index 1995 = 100

Figure 2. Real Effective Exchange Rates in Euro Area Countries: Intra/Extra-Euro Area, 1995 to 2009, Index 1995 = 100

"There is surprisingly large variation across our four measures of extra- and (in particular) intra-euro area relative prices—based on wholesale prices, consumer prices, unit labor costs, and export unit values. For some countries, such as France and Ireland, the picture becomes clearer if one ignores the CPI price series that generate unconventional results".


All together, a very interesting study which suggests that in particular for Ireland, intra-Euro area trade has been consistent with continuously depreciating Euro, while extra-Euro trade is consistent with consistently appreciating Euro. Since exports within Euro area are more price-sensitive than exports outside Euro area, this clearly explains, at least to some extent, why nominally appreciating Euro (in Forex markets) had so far little adverse effect on Irish trade outcomes: we benefit from effective real devaluation within the Euro zone and are not signficantly hurt by effective euro appreciation outside the Euro area.

11/07/2011: A simple guide to an EU bailout

How EU countries go bust - a Simple 13-steps Guide for Asking for Bailouts:

Stage 1: Deny the problem (debt/deficit/banks - or all three) exists
Stage 2: Blame the Markets (ban short selling 'speculation' and condemn irresponsible profiteering)
Stage 3: Announce first round of cuts to purely "increase markets confidence" (no need to actually want to implement them)
Stage 4: Deny again that problem exists ("Our resolute measures - stage 3 - have resolved the problem")
Stage 5: Claim your country is not like Portugal/Greece/Ireland/Iceland
Stage 6: Announce a turnaround in the economy's prospects (or the imminent arrival of one)
Stage 7: Blame domestic 'doomsayers' for 'turnaround' being delayed
Stage 8: Announce more fake/ineffective/unimplemented austerity
Stage 9: Claim solvency for the next 6-9mo ("We are pre-funded for... months")
Stage 10: Ask Ohli "Imagineerer" Rhen / Grabosso / Lag(behind reality)arde / Frumpy von Rompuy to confirm Stages 4, 5, 6, and 9 announcements during a trip to your country
Stage 11: Send a motorcade to the airport to meet ECB/IMF team and Ask for a Bailout.

Post Bailout:
Stage 12: Blame ECB/IMF/EU/Markets/Rating Agencies for collapse of your economy
Stage 13: Repeat from Stage 4 through 10 to arrive at Bailout-2...

11/07/2011: Industrial production for May 2011

Industrial Production data for May was published earlier today by CSO, so here are updated charts and some core results:

Per CSO: "Production for Manufacturing Industries for May 2011 was 0.3% higher than in May 2010. The seasonally adjusted volume of industrial production for Manufacturing Industries for the three month period March 2011 to May 2011 was 1.4% lower than in the preceding three month period." Let's add some more analysis to that:

• May level of production in Manufacturing stood at 110.9, down 0.18% on 3 months ago and up 0.54% yoy.
  
• There was zero change mom from April.
  
• May 2011 index stood 2.43% above the comparable period in 2007. Last 3mo simple average of industrial production was 1.28% below the same figure for 3 mo before and 1.75
• % above the same period yoy.
  
• So on the net, there is roughly no improvement since Q2 2010.

All industries high level data:

• May index for volumes in All Industries stood at 109.6, up from 109.1 in April (+0.46% mom) and up 0.27% on 3 mo ago. Index is up just 0.09% on May 2010.
• Index is now up 1.56% on May 2007
  
• 3mo average to May 2011 fell 1.24 compared to 3 mo period before but rose 1.27% yoy.
• So just as with volume index for Manufacturing, All Industries volumes remain relatively flat since Q2 2010.
  

Again, per CSO: "The “Modern” Sector, comprising a number of high-technology and chemical
sectors, showed an annual decrease in production for May 2011 of 1.5% while an increase of 4.4% was recorded in the “Traditional” Sector." Some more details:

• Modern Sectors volume of production fell 0.88% mom from 124.8 in April to 123.7 in May, relative to 3mo ago index is down 0.72% and yoy index is down 1.12%. Index is now 13.51% above the reading in may 2007 - an impressive cumulated performance.
• However, the current 3mo average declined 1.93% on previous 3mo average, though March-May 2011 stands 0.79% above the same period average year ago.
• So again, moderately flat trend along 123.8 since Q2 2010.
• Traditional sectors reversed 3 consecutive months of relatively shallow declines in May to show a 5.83% mom improvement - a strong monthly gain. Index is now 4.04% up on 3mo ago and 4.16% up yoy. However, index remains 12.78% down on May 2007 levels.
• Traditional sectors volume index average for 3mo to May is 0.26% above 3mo average for the period before March and 2.25% above same reading for 2010.
• On the net, strong showing in Traditional Sectors in terms of volumes.
  

What about the Turnover indices:

• Turnover index for Manufacturing Industries rose to 99.6 in May from 98.2 in April (and increase of 0.91% yoy and 1.43% mom). This seems to contradict recent PMIs showing compressing profit margins in recent months, though PMIs are leading indicators while the reported indices reflect activity at the time. Turnover in Manufacturing is now 7.06% below the same reading for 2007. 3mo average through May 2011 is 2.79% below that for the 3mo period through February 2011 and 2.48% above the comparable period in 2010. The change during 2011 so far is not enough to attain the 12mo high of 102.1 achieved in January 2011, though we are moving in the right direction.
  
• Turnover index for Transportable Goods industries also rose from 97.8 in April to 99.2 in May, registering a mom increase of 1.43%, a 3mo rise of 0.61% and a yoy increase of 1.02%. Relative to may 2007, index now stands at -8.18%. 3mo average has moved down 2.67% relative to 3mo through February 2011 and is up 2.34% yoy.
• Finally, New Orders Index rose strongly from 98.4 in April to 100 in May, up 0.20 on 3mo ago, +2.35% yoy and +1.63% mom. Index is now down 7.42% compared to same period in 2007. 3mo average through May fell 3.58% compared to 3mo average through February, but is up 2.47% on a year ago.

To sum, up, slower growth rates in Turnover Indices and New Orders index, as well as contracting indices in volumes for Manufacturing and and Modern Sectors, plus slower growth in Volume index for All Industries suggest that overall PMI signals of slower growth through May are holding. Traditional industries bucked the trend here, but we can expect further small slowdowns in June and July. Growth, to put it briefly, is flattening out in the sector.

10/07/2011: Irish Tax Rates in International Perspective

Some interesting international comparisons for tax revenues across the EU27, plus Israel, Norway and Switzerland (no Iceland, sadly), courtesy of the OECD dataset - last updated April 27, 2011. I added Ireland's tax ratios relative to GNP based on CSO data for all the years 1999-2009.

Let's run some comparisons:

• In 1999, total tax revenues in Ireland were 33.2% of GDP and 38.9 GNP which compares to 37.% of GDP for the simple average of 30 countries in the sample and 37.2 median. There was a slight (0.3) skew in the data. With a standard deviation of 7.0 that year, Irish tax/GNP ratio was well within the average, which is confirmed by the rank attained by Ireland as 12th highest tax economy in the group.
• In 2003, total tax revenues in Ireland were 30.3% of GDP, which of course would be consistent with FF/PDs 'low tax' policies the Left is keen of accusing them of. Alas same year total tax revenue in Ireland stood at 35.9% GNP which compares to 36.7% of GDP for the simple average of 30 countries in the sample and 36 median. So as Irish tax revenue as a share of economy declined, so did the sample average. The new skew was 0.2 lower than in 1999. Hence, with a standard deviation of 6.5 that year, Irish tax/GNP ratio was again well within the average - actually even closer to the average - which is confirmed by the rank attained by Ireland as 16th highest tax economy in the group.
• Now, note that within both of the above years, in terms of GDP comparative, Irish taxes were ranked 22nd and 26th highest in the sample.
• Zoom on to 2007 when Irish tax revenues accounted for 32.0% of GDP and 38.8% of GNP against the sample average of 38% of GDP and a standard deviation of 5.8. There was zero skewness that year. Once again, there was no statistical difference between Irish tax rates and the average. Ireland ranked 25th highest tax economy in comparison against GDP and 14th in comparison to GNP.
• 2009 is the latest year we have comparatives for and in that year, Irish Government tax revenue accounted for 29.6% of GDP and 35.9% of GNP, which (GNP figure) again was statistically indistinguishable from the mean which was 36.7% (with standard deviation of 6.1 and skew of 0.2).

So now, let's map the above data:
Notice the following features of the above chart:

• Irish tax returns as a function GDP are more volatile than in terms of GNP - in fact historical standard deviation for Irish tax revenues in terms of GDP is 1.406 against that for GNP of 1.210. The median standard deviation for the sample of 30 countries is 0.736.
• Irish tax returns as a function of GDP are always statistically significantly different from the average, but our tax returns as a function of GNP are never once outside the average. In other words, folks, our tax burdens are average. Not low, not high - average.
• Only within the period of 2001-2003 did our tax returns as measured in relation to GNP fall statistically significantly below those for Euro area (EA17).

Let's put our tax revenues against some comparable countries. I divided the following two charts into Small Open Economies that are members of the Euro area and those that are not:
Interestingly, for the Euro are countries, Sweden, Belgium, Austria and Finland have tax burdens in excess of the average (note they are above the 1/2 STDEV band relating to the mean. Notice that all of the countries in that group, with exception of debt-ridden Belgium, are experiencing declines in their tax burden since 1999. Apparently, to the chagrin of our friends in the Trade Unions, Tasc and Irish Times - the ones so keen on shouting about the FF/PD coalition tax policies - the Nordics too were run by right-wing free-marketeers.

Next, notice the countries within the trace band around the mean - these are the Netherlands, Lux, Slovenia, Ireland (GNP), Portugal and Czech. Greece has dropped below the average range around 2004. It's an interesting neighborhood we are in, which includes highly aggressive tax competitor such as the Netherlands.

Lastly, we have a truly aggressively competitive Slovakia.

So again, there is no evidence in sight that Ireland is or was a low tax haven.

Now, for non-Euro countries:
Speaks for itself, but let me cover one little point. Switzerland has ranked within lowest 5 tax economies in 10 out of 11 years between 1999 and 2009. The country with functional public services and great public infrastructure has managed its affairs on the average tax revenues of just 29.3% of its GDP against the average of 31.7% of GDP and 37.5% of GNP for Ireland. So, really, folks, cut this crap about 'low taxes have ruined Irish economy/society'. The Swiss do it on less than us, better than us and achieve great social cohesion, civility and cultural development while using three languages where we can't master two. It's not in how much you spend, it's how you spend it.