Medium Term Fiscal Statement Post author By Seamus Coffey Post date November 14, 2012 The MTFS from the Department of Finance can be read here. Categories In Uncategorized 16 Comments on Medium Term Fiscal Statement ← Paul Hunt on rent-seeking and regulation in gas and power → Ratings Outlooks 16 replies on “Medium Term Fiscal Statement” What’s the point of a Fiscal Advisory Council again? Forecasts come and go, but the GNP forecast for 2012 of 1.4% increase looks odd, the Central Bank forecast 0.4% contraction just a month ago. http://www.centralbank.ie/publications/Documents/Quarterly%20Bulletin%20Q4%202012.pdf Interesting read. Optimistic, upbeat. However, overall, maintain status quo. Current defict including PNs continues at c. €19-20bn notwithstanding large numbers leaving the PS. Unfunded PS pension liabilities are not factored in here. This remains the elephant in the room. Domestic demand continues to crash (but stays on trend despite the forthcoming budget…and what about March’s PN payment?). Unemployment continues to be dismal. Exports to save the country….but then, in the middle of it all, “there is now mounting evidence to suggest that external headwinds are gaining momentum.” Ah yes….if so, why is the forecasting again so ‘optimistic’? Why so ‘optimistic’? Ah yes…”It is important to note at the outset that the economic and fiscal projections set out in this document do not take account of any benefits that may flow from future developments that may result from the announcement, following the end-June euro area summit, that “the situation of the Irish financial sector would be examined with the view of further improving the sustainability of the well-performing adjustment Programme”. Santa will bring gifts to a good child. Got it. Christmas is coming, of course. “Unfunded PS pension liabilities are not factored in here. This remains the elephant in the room.” Do you have any figures on the scale of that liability? I would have thought it has been significantly reduced in recent years given the reduction in benefits to new entrants to the PS and the increased contributions from existing PS. Probably the most interesting comment in the MTFS is the following extract; “Notwithstanding the scale of the fiscal adjustment that has already been implemented, with additional measures to come in the years ahead, this interest/revenue ratio is forecast to rise further next year, before stabilising at around 16% in 2014 and 2015. The equivalent interest/GDP ratio in 2014 and 2015 is estimated at just over 5½%. These are certainly elevated ratios but importantly they are well below the levels seen in the mid- 1980s when the equivalent figures were over 20% of revenue and close to 11% of GDP – see figure 2.1.” The implication is that we can float ourselves off the reef one more time without dealing with the issues which caused us to go aground in the first place. It won’t work! Others are deciding when and in what circumstances we get off it. GNP 2012 at €130.850 GNP in 2015 of €142.325, an increase of 8.8%, Employment to increase by 2.2% as a result thereof. Apart from being very very optimistic on GNP, surely that level of GNP increase should generate more than a 2.2% in employment. @Carson “would have thought it has been significantly reduced in recent years given the reduction in benefits to new entrants to the PS and the increased contributions from existing PS.” New penison rules for PS workers haven’t been introduced for new starters yet. @ Carson Brian Lucey indicates €100bn type of level. Have seen figures of up to €160bn before (need to dig out the IT or Independent articles). http://brianmlucey.wordpress.com/2012/07/20/pension-and-crises/ Recent reductions (actual or proposed) do not reduce already committed amounts. Hence, elephant in the room. No matter what is the figure, it is huge. The PS pension levy is a small reduction in this future OBS liability for Ireland. Immaterial in the Big Picture context (obviously meaningful for individuals paying it). It looks as if the economists worked back from the existing budget targets. GNP in 2012 is higher than GDP, possibly related to foreign sector transactions while 2015, the last year in the forecast period, has as expected the sunniest outlook. The International Energy Agency’s forecast this week that the US will become the world’s largest oil producer by 2020 highlights a trend in recent years where the US has become an attractive base for manufacturers compared with Europe because of low gas and labour costs. This trend indirectly impacts Ireland. The 20% plunge in Sept goods exports doesn’t appear to be a problem either as rises had negligible domestic impact. The Irish Times reports today that sales by Dell Products Ireland represent 20% of Dell’s worldwide revenues of $62.1bn last year – – that’s greater than when there was a factory in Limerick employing 2,000 people. Thank you Foxconn Poland! On pensions, the EU has mandated publication of accruals of public pay-as-you-go pensions. The Irish system had operated like a ‘slush fund’ where additional years entitlements were given out as if there was no cost. Minister Brendan Howlin told the Dáil last week: The first misconception is that public service pensioners are all on massive pensions. The truth is that only around 1% of public service pensioners are in receipt of a pension in excess of €60,000 and only a few hundred have a pension in excess of €100,000. The fact is that about one third of civil service pensioners have a pension of €10,000 a year or less, around half have a pension of €20,000 a year or less. The tax-free lump-sum of 1.5 times salary for full service of 40 years in the civil service system does not appear to be classified as a pension. At half salary, a full time clerical officer with full service would get €18,000 in addition to the lump sum. Older retirees got all the earnings increases and the recent cuts did not result in an adjustment. There was a tax clawback for higher pension earners in last year’s budget. Private sector workers in the UK and Ireland are among the worst pensions in Europe @ Rob S, Paul W. Thanks for the replies. Hopefully the relatively positive outlook for 2012 is an indication that the provisional Q3 national accounts figures are not too bad. The 2013 and particularly 2014 forecasts are pretty pie in the sky at this stage, so I would read this outlook as being cautiously positive. @Michael Hennigan – Finfacts, Re Mr Howlin’s quote. There’s a tendency by our current junta to display data that suits their own preferences. I guess you’ve been tracking these over the years, so you might shed some light on a couple of questions I have: 1. Howlin switches from Public Sector to Civil Service – does this change (& lower) the base for the subsequent stats provided? How would ‘part-time’ employees effect calculations? AM, As a former mid ranking official who once drafted these types of replies, yo can bet a change from PS to CS means something and it undoubtedly embellishes the minister;’s argument. I heard an Academic from TCD y/day arguing for the curtailing of tax relief on pension contributions to reduce the size of the maximum fund to 600k or about half the UK level. This would constrain a retiree from having a pension much above the AIW. Do you think this was going to apply to him? @ AM Pensions for retirees who had worked part-time would reduce average payments. The percentage of parttime/work sharing staff is not easily available. The analysis of pay and pensions (link below; bottom page 2) from Howlin’s department says there are 264,000 full-time equivalents in the ‘Exchequer-funded public service’ in 2012 excluding local authority staff (of about 30,000), down 5,406 or 2% since 2007. There are 120,000 pensioners. The Irish Times reported on Oct 11 that Howlin had told the Dáil that in mid-2012, there were 292,000 in the public service — down 28,000 since 2008 and comparable with 2005 staffing. So there is no standard staff metric. http://per.gov.ie/wp-content/uploads/Analysis-of-Exchequer-Pay-and- Pensions-Bill-2007-2012.pdf In 1975, provision was made for automatic increase in pensions from 1 July each year in line with wages and salaries in the civil service. This was later amended to increase pensions from the same effective date as that of increases applied to salaries of serving staff. Howlin said in the Dáil: “Pensions are a preserved property right under the Constitution. That is the legal advice. Deputies can go and get independent advice if they wish. If they want a constitutional amendment, let us consider that.” If a private sector fund is bust, there is nothing preserved about it; besides existing pensioners have priority rights over members of schemes who are still working. http://per.gov.ie/wp-content/uploads/Analysis-of-Exchequer-Pay-and-Pensions-Bill-2007-2012.pdf @Michael Hennigan – Finfacts, Thanks. The issue of how part-timers are counted is something I’ve wondered about. Mostly when PS Unions quote the %age of workers earning relatively small wages. Fig 2 (page 2 of your linked pdf) “2012 Exchequer Pay & Pensions Billl Expenditure by sectors” shows Civil Service at 13.5%. So Min Howlin’s switch from PS to CS could be quite significant. “If a private sector fund is bust, there is nothing preserved about it…” I think this should be how it works, however AIB’s pension fund seems to qualify for better treatment. Namawinelake has covered this recently (and includes some irate comments from me). I’m not sure why the public is so accepting. @ Tull, “who once drafted these types of replies…” If it was my job I’d do the same, it’s up to the Dail whether they’re happy to accept nonsense.. Comments are closed.