The mid-year Exchequer Return released on Monday gives a somewhat noisy insight into the state of the public finances. It is hard to draw exact conclusions about the behaviour of tax revenue and government expenditure because of the changes introduced in last December’s budget and the reporting of the relatively meaningless ‘net’ expenditure measure which was also affected by the Budget.
Anyway, in this little poke into the figures we will just look at the Exchequer Balance which allows us to throw all these anomalies into the mix and focus on the final outcome.
Here are the cumulative Exchequer balances for the past five years.
At €10.8 billion, the Exchequer Deficit for the first six months of the year is better only than the €14.7 billion deficit recorded in 2009, but is worse than the €8.9 billion deficit recorded in 2010. However, the Information Note which accompanies the returns tells us not to worry because:
The year-on-year increase in the deficit was primarily caused by the €3,085 million in non-voted capital expenditure Promissory Note payments to Anglo Irish Bank, INBS and EBS. Excluding these, the deficit fell by over €1 billion.
This is meaningless and should more appropriately be described as misleading.
Even though the deficit was nearly €2 billion higher than last year, if we engage in some make-believe and just forget about the €3 billion we spent on the Promissory Notes, “the deficit fell by over €1 billion”. I think Aprés Match based a sketch around the idea of “the man who lent us the money forgetting the debt” so it must be on solid ground.
The Promissory Notes might cloud the deficit figures as they have already been included in the general government debt (GGD). However, the Information Note fails to mention the annual interest on the Promissory Notes which will be added to the debt. I don’t know what the exact interest rate is, but any rate over 3% would more than offset the phantom €1 billion fall in the Exchequer deficit mentioned above.
By the half-way point of last year our debt interest costs had run to €2.18 billion and all had been met from the Exchequer Account. The equivalent figure from the Exchequer Account for 2011 is €2.41 billion. We are accumulating (expensive) debt at an alarming rate, yet our interest costs have apparently only risen 10.5% on the year.
Here are our debt interest costs for the past five years from the Exchequer Account.
The 2011 expenditure on debt interest did a wonderful thing in May – it fell. Anyway, the standout feature is how low the blue 2011 line was in January and February. It seems we paid virtually no debt interest in the first two months of the year. Of course, this is not true and we actually paid about €0.8 billion in interest, but did so from something called the Capital Services Redemption Account (CSRA). There is a substantial interest cost which did come from the Exchequer Account in 2010 but did not do so in 2011. The interest figure given in the Exchequer Account is €0.8 billion lower than our actual interest expenditure.
A year-on-year comparison which says that “the deficit fell by over €1 billion” but can only do so by forgetting about the €3.1 billion Promissory Notes payment, ignoring €1 billion of accumulating interest which we will pay and omitting €0.8 billion of interest which we did pay does not stand up to any scrutiny.
Even if we do ignore the Promissory Notes the “improvement” in the Exchequer Deficit is around €200 million which is a small dent in the €18 billion deficit from last year.
Finally, we will look at the current account balance which isn’t affected by Promissory Notes or other capital expenditure changes. This year central government expenditure will be around €68 billion, with around €60 billion of that in the current account. With nearly 90% of expenditure coming through the current account it is important to track the changes here.
And changes there are none. At €7.2 billion, the current account deficit is exactly the same as it was in 2009, and while there does appear to be a €0.8 billion reduction on the €8.0 billion current account deficit recorded to this time last year, that is eroded when we add back in the €0.8 billion interest paid from the CSRA. The current account deficit isn’t budging.
To be fair this is what the DoF have forecast as they see last year’s €18.7 billion Exchequer deficit falling to €18.2 billion this year and hence the claims that the public finances are “on target”. Maybe it’s time we moved the goalposts and aimed for “improving” rather than just “not getting worse”.