More Black Holes? The Curious Case of the Missing €700 Million

The basis for the debates about fiscal policy in the election has been the Four Year Plan agreed with the EU and the IMF. This plan outlined measures that cumulated to have a €15 billion effect on the level of the deficit by 2014.

It is widely believed that the timing of the adjustment in this plan involved €6 billion in adjustment in 2011 and €9 billion in further adjustments over 2012-2014. In fact, this is not the case. The widely-cited €6 billion figure in relation to the current year’s budget includes €700 million in temporary measures due to once-off asset sales.

Thus, looking at page 19 of the Four Year Plan, we see that the adjustments planned for future years are €3.6 billion in 2012 and €3.1 billion in 2013 and 2014. This adds up to €9.8 billion. (I’m guessing there is some rounding going on here so that additional adjustments over €9 billion don’t appear to add up to the €700 million in once-off measures for 2011.)

Coming back to the election campaign, Fine Gael say their figures are from the Department of Finance, so they are presumably using the Four Year Plan figures. And they are aiming for the same 2.8% deficit that Fianna Fail are. This means that will also need to make €9.8 billion in adjustments. However, going to the back of Fine Gael’s budget document, one finds €6.444 in spending adjustments and €2.441 billion in tax measures, for a combined €8.9 billion.

So, on the face of it, Fine Gael’s proposed adjustment is about €900 million too low to achieve their targeted budget deficit, even if one accepts the Department of Finance growth rates. If this figure is added to FG’s tax measures, you would get €3.3 billion in additional taxes over 2012-2014, just €300 million lower than in the Four Year Plan. (I’d also note that €750 million of FG’s spending savings are actually due to transferring water provision to private firms that will collect these funds in water charges—these are spending savings that will feel like tax increases.)

During the campaign, Brian Lenihan has raised the issue of FG treating the current temporary asset sale measures as though they are permanent. However, this appears to be another case of glasshouses and stones. The Fianna Fail manifesto now claims that 2011 will see €5.9 billion in permanent deficit-reducing measures and only €110 in once-off other measures. And the FF manifesto now promises a figure for tax increases over 2012-2014 that is €650 million less than in the four year plan.

All of this raises a few questions: Have €600 million in once-off revenue raising measures been abandoned? If so, what are the permanent revenue raising measures that have been put in place to make up for them? If there are still €700 million in temporary measures in place, as Brian Lenihan seems to believe, then why are these not accounted for in Fine Gael’s plans or, indeed, those of his own party?

Update: From comment exchanges with FG officials below, I now see that I had missed that FG’s €8.8 billion omitted €1.2 billion in adjustments that occur in future years as a consequence of decisions taken in the 2011 budget. This additional €1.2 billion splits equally between spending cuts and tax increases. I don’t much like the way FG have presented the figures or calculated the tax\spend mix. Still, I’m going to score this one for FG and against Brian Lenihan.

23 replies on “More Black Holes? The Curious Case of the Missing €700 Million”

If you are talking mns rather than bns these days Karl, I’m not sure the electorate are that interested and the politicians will try to get away with whatever they can. Well spotted though.

There is a healthy week left in which to ask the parties about this.
That is if the media can work it out and move in past the speeches…

There was also this one too.
“So, by my calculations, we don’t have the €17.5 billion that the IMF figures imply are required to get us through 2011-2013; we have €7.1 billion. (Note that we would still need €11.5 billion if the government’s deficit projections came to pass, implying we’re still not funded for the three years.)”

And via
“…Taking all of this into account the loss on NAMA’s portfolio of €71bn (at present) is some €2bn.”

Excellent piece of analyis.

I’d like to see more questioning of the Department of Finance and ESRI growth forecast figures I blog upon in a general way here,, but you can’t have everything:) On the declared projections you’ve found black holes.

The worry is there is a hidden agenda to persuade us all that the elephant of default is not with us in the room, that eg cuckoo Anglo’s senior bondholders will not share in default, that default is not inevitable.

In so doing, we are avoiding reality.


I have little to say on the four year plan – and insufficient time to study it – but my hunch is that it was history the day it hit the printer’s ink – and I haven’t changed since.

I’m still on the bleed1n banks ….

On the subject of black hole economics, anyone care to analyse Gerry Adam’s economic wisdom as presented on The Week in Politics last night? Apparently once the state walks away from the banking liabilities it has assumed, everything will work out fine. Tough it out that’s the trick. If only…


I think your concerns relate to the difference between the 4-year plan and the budget. The 4-year plan committed to €6 billion of measures in 2011 and on a full-year basis. But in the actual budget, on top of the €700m in one-off measures (which as far as I can make out no party is including in their plans for 2012-14), the Government delivered permanent structural measures that aim to deliver €5.3bn in cash savings in 2011, and an additional €1,200m tax proceeds on a full year basis (totalling €6.5bn), together with a smaller amount of additional spending savings on a full year basis. It is this additional €1,200 full-year effect that has been factored into FG’s (and indeed Labour’s) fiscal plans, not the one-off €700m of measures that you cite. (I note that once again you avoid any further scrutiny of Labour’s plans).

As for the change in the financing of water provision, I am sure you are aware of the important difference between taxes and user charges in terms of economic behaviour.


Thanks for this Andrew. Note that I raised these issues as a set of questions about the different plans rather than as a criticism and concluded the Mr. Lenihan’s criticisms of you were a case of throwing stones in glasshouses.

I didn’t mention Labour’s plans because they don’t claim to be meeting the 2.8% in 2014 and so can’t be compared with the Four-Year Plan. And, as you may have noted, I defended the FG plan a few days ago from Labour’s “€5 billion black hole” claims.

On the issue of the 1.2bn in tax increases that you are adding on, I guess this means that FG plan to have a mix of 3.64 bn in tax increases out of a total of 9.7bn in adjustments, so 37.5%.

This is quite a bit higher than the 27% “percentage of new measures” that you have been highlighting but that’s politics I suppose.

On taxes versus user charges, most of us won’t be able to avoid using water over the next few years, so the effect on net disposable income of water charges will be similar to the effect of a tax.

Hi Karl,

I’m an economist with Fine Gael.

To clarify the €9.8bn is cashflow; the 4yr plan actually sets out €8.8bn of new measures from 2012-2014. So additional impacts fom the 2011 budget are included in the headline figure of €9.8bn. These additional impacts are seen for the spending side in Table 3.1 (p55) and for taxation as the difference between first and full year yields in 2011 in Table A.10.2 (p137).

This is also explicit in the bailout Memorandum of Economic and Financial Polices. So for example footnote 4 on p29 states that the 2011 carry forward is part of the 2012 €3.6bn requirement.

The €8.8bn of new measures is outlined in the same above tables in the four year plan.


Thanks Fraser. This is useful, though I’m not sure the distinction between new measures and the additional impact of measures already taken matters a lot. A future government could, if it wanted, chose to undo the “additional impacts”.

Also, just to make sure I’m not claiming things that would make Andrew get further annoyed at me, am I correct in saying that FG plan in government to achieve 3.64 of the 9.8 billion adjustment via tax increases?

Hi Karl,

The FG plan is for tax to be 27% of the €8.9bn in new measures. I would argue for a clear difference between 2011 carry forward and new policy measures in 2012-2014. In most cases, the govt. couldn’t just undo the carry forward without also affecting the 2011 yield which would be included in the base for later years – you generally can’t change the extra of the full yield over the first year yield, without affecting the first year yield itself. Thus its not a simple adjustment.

The breakdown of the approx €1.2bn carry forward effect is roughly 50:50 between tax and spending – approx €500/600m each can be derived fom the NRP tables referred to in the previous post. But this is cashflow from previously enacted FF policy not a mutable figure in its own right. Undoing some of the existing adjustment, like trying to reduce the amount of total adjustment required, is likely to hinder renegotiation the elements of the external package where change is possible.

For clarity purposes on this €1.2bn carry forward, it is included in Labour’s €7.1bn adjustment, thus only giving it a net adjustment of €5.9bn – thus they are €3bn short of the IMF / EU agreement, not €2bn as commonly reported.


Thanks for the update Karl,

We’ll have to agree to disagree on the presentation of the figures. It seems clear that measures not cashflow is the correct focus for debate.

Regardless of that, the key figure in the public domain is the €9bn of measures needed. FG followed that figure and didn’t attempt to mislead by including carry forward in the €9bn, unlike other parties.


Never ceases to amaze me as to how people here think that because something appears on the “internet” it is true !!!

Namawinelake throws a few figures together and next thing we know it is gospel whether he is right or wrong !!

KW did some analysis of FG and FF figures and the glory boys here were off on a rant about FG “black holes” and misleading information for the wrong purposes. Turns out the figures were fine but do we get an apology from the ranters ? (I am not referring to you KW).

There are more people in the country interested in getting on with their lives than a few that prefer to finding fault with everything. My advice to my kids is to get to hell out of this country as it is permanently stuck in the past.

“Turns out the figures were fine but do we get an apology from the ranters ?”
I am glad the FG figures are robust (at least in this case) and they deserve credit for that. Questioning is healthy. Irish people are too quick to play the man and not the ball – one of the major reasons we are in this mess. Now FG just have to fill in all the other holes they are inheriting…

“Namawinelake throws a few figures together and next thing we know it is gospel whether he is right or wrong !!”

@TRP and Fraser Hosford,

On the subject of black hole economics again, the problem is FG and Labour reliance on DF projections in such documents as eg

The problem is FG/Lab don’t tackle the subtle variations that can occur if growth projections are not as expected.

For example, the doc above is careful to advise the sensitivity of projections to possible error. To provide for error predictions, scenarios involving a 1% difference in growth are given with their impact on eg Budget Day GGB in table 6.

“Table 6 – Impact on the Budget Balance of a 1 per cent change in the rate of growth eg For 2011 based on a budget day GDP growth of 3.3%
Gives a budget day GGB of -10% GDP.”

But consider growth that doesn’t reach 3.3, but is 2.3, or 1.3, or less, then we are talking of GGB reaching additional 10%,20%,30% increments that are unsustainable.

What concerns me is the over optimistic scenarios in the projections by both FG and Lab that do not take into account such black hole variations. There is also the greater concern that in the coming weeks of the March summit when we renegotiate hopefully our bailout and demand restructuring of our debt, that such overly optimistic projections will be used against us, as evidence of our ability to absorb current debt levels and austerity, when the precise opposite is the case.

FG doc here:

“Should growth rates disappoint, we will continue with the same level of fiscal adjustment, but will avail of the extra year to reduce the deficit to
under 3% of GDP offered by the EU-IMF Programme of Support.”

I am in no way convinced projected growth rates can be realised. If you
believe they can be, your negotiating position with the authors of the EU/IMF/EFRF bailout will be weakened; your stance on the need to restructure bank debt will also be weakened.

Gambling on such matters as over speculative and over optimistic growth rates can be a recipe for disaster in coming negotiations both locally in dealing with our banks and abroad at EU/IMF summit levels.

@ Colm, and others,

And there are deeper methodological problems with the DoF’s forecasts. In section 2.2 of the above hyperlinked document, they state:

“Public consumption is projected to fall by 3 per cent in real terms next year. This reflects reduced public sector employment achieved through natural attrition as well as reduced purchases of non-labour goods and services”

This is in the context of a predicted 3 bn budget adjustment for 2011. Now, maths may not be the strong point of the DoF guys, but my pocket calculator tells me that 3 bn is a little over 6% of Ireland’s current 47 bn spend.

How can we take any predictions seriously from a group of people who think cutting spending by 6% will result in a reduction of public sector consumption of only 3% ?

This glaring omission underscores a more general point about the lack of attention paid to feeback effects from austerity to economic growth.

@Ludwig Heinrich Edler

Yes, their predictions were frequently way out during periods of growth, they have absolutely no experience in the type of forecasting that accounts for the effects of a deflationary spiral. Put in blunt terms, when the body begins to eat itself, cuts of 3% can have the effect of 6% cut during times of growth and inflation.

But its the absence of mathematical models across the board that do not take deflation into account that should be cause for concern. To try to answer your 6 = 3 question there, they are factoring in perhaps a large growth in emigration.

Add this to deterioration in public service cuts, the mind boggles. DF figures are unreliable in the extreme, that parties have used them to perform similar accounting tricks is a cause for concern. Budget Day 2011 should be very interesting!

One invisible figure that doesn’t get treatment is GNP, this is whewre most jobs are, last 3rd quarter 2010, it was minus .8%. This deflationary figure can generate rapid rises in unemployment very quickly.

@ Colm,

You are right to consider the effects of deflation.

Another of your points I agree with is why on earth is the DoF allowed to make “forecasts” without laying their models to ground?

I suspect it is a hangover of the “treat them like peasants” mentality, in which anything worth telling is told to important people in smoke-filled halls, and the tweed-cap-duffing masses should just accept the vagaries of press releases as so much scripture.

This site is a rare bastion of critical consideration of mainstream soundbites. Hail to Karl Whelan for having not only the guts, but also the aplomb and patience, to intelligently and consistently dissect all the rehashed tripe from Kildare Street and Donnybrook.

Of course, the masses never “duffed” their tweed caps, rather they “doffed” them. Been watchin’ too much Simpsons, I guess.

The central bank’s latest quarterly had already pointed out that, of the additional €3bn in addtional measures, only €2.3bn were permanent measures.

From that, it argues that the measures will reduce growth by €2.6bn in the first year alone.

The DoF estimates the sensitivity of taxation revenues to changes in GNP at o.6, plus there is an inevitable rise in outlays from weaker growth. This implies that the net saving from the measures is negative; the underlying (non-bank) deficit will rise.

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