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There’s been a lot of talk about there being only a €14 billion deficit this year, so let’s dispel some of these errors.
Firstly, the reported exchequer deficit in the end of year report is €14.9 billion. As any primary school student can tell you, that rounds to €15 billion.
Secondly, as explained at the bottom of the first page, the €3.06 billion Promissory note payment has not been included in the figures because of [EXCUSES EXCUSES]. However, note that it was actually paid.
€14.9+€3.06 = €17.96. Therefore I say that this years deficit was €18 billion. QED.
Now this is ~€6 billion less than last years deficit — but how much did that “one off” bank payment cost again?
the “3.06bn” is in there as a positive and a negative – included as a neg in the -24.109bn figure, and then as a positive in the 3.06bn promissory note figure directly below that. This shows both the settlement of the prom note (the +ve) and the borrowing via new bond issuance (the -ve). That’s why it’s a zero on a net basis.
So what the DoF have done you see, is they have moved the €3.06 billion from “Note 6″ (Capital Expenditure), into Note 8 (Fund Repayments). This has the effect of artificially reducing the “deficit” by €3.06 billion.
This is great. We can just move that Irish Life €1.3 billion payment down to Note 8 as well and we’ll only be €13.6 billion down. Actually, why don’t we just move everything in Note 5 down there altogether?
No wait. We can’t do that. Because the €3.06 billion, along with all the other Note 4/5/6 items, wasn’t a loan repayment. It was a promised cash payment to IBRC (because we love them so much). It actually belongs in Note 4 (Voted current expenditure) along with the funding for the rest of the departments (most of whom we don’t love quite as much).
These books have been sautéed, and the resulting dish stinks to high heaven. The deficit is €18 billion.
The alternative presentation is a much better format and less disjointed than the traditional format. It should be developed to present comparative figures for five years, at least on a yearly basis.
Income tax receipts did well in Dec. There was some anecdotal evidence of difficulties with revenue digital cert renewals that did not go according to plan and may have pushed some Nov returns into Dec.
Better than I thought it would be. Am I correct in thinking that of the 3.571BN non voted capital, virtually all other than Feoga .730BN, is non recurring (with a little luck!)?
What is interest on contingent capital notes? Are these Bank pref shares?
Are BOI shares pref shares or ordinary (non interest) shares?
A quibble with some terminology in the alternative presentation. Even though PRSI is , theoretically, paid into a social insurance fund, the expenditure is all labelled ‘social protection’, with no distinction between the portion funded by insurance (PRSI) and the portion not funded at all.
It seems to me that the official view is moving towards that of annoyance with the very idea of a social insurance fund, and towards a view that regards all income as part of the general pool and all payments as social protection, with no distinction in monetary terms between insured and non insured.
“What is interest on contingent capital notes? Are these Bank pref shares?
Are BOI shares pref shares or ordinary (non interest) shares?”
They have all three – coco’s, prefs and ord equity. Coco’s coupons are included in the “other” capital receipts (for both AIB and BOI). This is because the coco’s are held directly by the MoF. The pref shares (have a dividend) and the ord shares (no dividend at the moment) are held by the NPRF, so would not impact the exchequer returns.
So basicly we got to under declare the deficit by 3.06 billion because its now Off balance sheet in the Bank of Ireland? Now pat Rabitte can tell his mates that he was right and we didnt pay.
I know the fiscal advisory council have been monitoring growth in the off balance sheet items. An update from them would be timely but not at all in the interests of the government. Since they get paid from the government I am guessing we wont hear too much.
Bravo to those who have been highlighting the mass tax avoidance by multinationals. Colm Keena and Colm McCarthy were late but significant players. Most praise however must go to Michael Hennigan, Jim Stewert and from political circles the ULA were most vocal.
I am guessing the 2 large payments by multinationals in december were at least partly down to the pressure being exerted. Hopefully more companies will be convinced to follow this lead. If the political will was there this could actually raise an extra few billion per year.
No matter how these figures are parsed, they are good news.
With regard to the PN payment in 2012, the creative accounting involved seems rather obvious. However, as Dan O’Brien points out in the IT today, even a complete banking deal (PNs and banking debt) would make little difference to the course of action that the government must pursue.
An 8% deficit remains impossibly high. We may be 85% of the way across the mountain but the remaining 15% represents the snow-blocked pass. Getting through it will be the real test of the government’s coherence and resolve.
For those of us who are not economists/accountants, can I ask if Michael Hennigans summary is agreed? My understanding following his comment is as follows: Comparing like with like the exchequer deficit in 2012 was 1.4 bn Euro lower than the exchequer deficit in 2011. Because interest paid on borrowings increased by 1.1 Bn in 2012, the deficit excluding interest payments was 2.5 billion lower than that in 2011.
A correction of 2.5 billion in public finances was reduced by 44% to an actual correction of 1.4 Bn due to increased interest payments on debt.
Is this correct?
The State holds €3 billion in Contingent Capital Notes in 3 banks (€1.6 billion in AIB, €1 billion in BOI and €0.4 billion in PTSB) as part of the recapitalisations in 2011. These Contingent Capital Notes are subordinated Tier 2 debt instruments with a five year and one day maturity and are convertible into ordinary shares in the event of the bank’s Core Tier 1 capital ratio falling below 8.25%.
The Notes carry a fixed mandatory interest rate of 10% of the issue price payable annually hence the €300 Million per annum.
The €3 billion will be repaid at end July 2016 if all goes well in the meantime
Thanks for info coco interest and explanations. The numbers are positive.
At ~15bn , less 3bn cuts/taxes in budget, less a hopeful ~3BN in non voted capital that should not recur, one is down to ~9BN, (notwithstanding the problem of interest cost rising). It almost begins to look as if the country could get out of the mess with a little growth.
Of course when one then adds the 3BN PN note, the hill starts to become a mountain.
“With a little growth” is exactly what the government parties are hoping for. If it simply serves to maintain the structures that got us into difficulty, what is the point? Those “in possession”, right across society, will remain in possession.
Meanwhile, the “Scattering” simply takes its knocks and gets on the boat or the plane as has happened repeatedly in the past.
Incidentally, while there is a notable improvement in media coverage – the national broadcaster excluded – of European affairs, there has been no comment on the fact that meetings taking place in Ireland are almost exclusively informal i.e. they are not decision-making meetings in a strict sense and their utility is open to question. However, they do serve to familiarise the citizens of the EU with each Member State in turn and, for that reason, they are certain to continue (apart from each host country taking maximum advantage of the situation, especially when it comes to filling hotels in low season. (The French seem especially good at it; Nice, Biarritz, Deauville, etc.).
Austerity is, of course, now de rigueur. Limiting visitors to Dublin tap water seems to be carrying matters a bit too far, however.
If Percy French was alive he might well compose something for
‘The Gathering of the Scattering’ to the air of whistling Phil MCHugh.
I doubt that it would be complimentary.
“If it simply serves to maintain the structures that got us into difficulty, what is the point? Those “in possession”, right across society, will remain in possession.”
That is the great dilemma. The helmsmen are not going to shout ‘ready about’ and tack in a different direction, because many of them would get a very good wetting and possibly be thrown overboard. It is regrettable but it is a matter of self interest not national interest. The Tanaiste’s partner, like other CPA beneficiaries, can be airlifted from a dead quango to a suitably crafted post, in line with her legitimate expectation. The legitimate expectations of others, to a job, or to job security are set to zero.
Clearly the level of devastation to date has not be cataclysmic enough to force more changes internally.
That such changes have not been forced through by politicians who profess the national interest is not just disappointing; it is a devastating indictment of a greedy , self centred, generation of national politicians and of the body politic that put them in power.
But if events turned worse than at present, would that force change? I have my doubts. In fact I do not think it would. A conservative and vested interest Ireland would continue to close ranks. ‘Ready about’ is not a call one is likely to hear from this government or perhaps from any Irish government.
On the subject of tap water.
Personally I would no problem with offering tap water to our guests, if that was the best on offer to accompany the Sunday lunch menu of the hosts.
But that is not the case, and we all know it is not the case and the Europeans know it too.
The tap water will therefore be seen as an insult.
If we have to try to make a point in our relationship with Europe, serving tap water is hardly going to make it for us.
The broad thrust of what is in the article can hardly be questioned. The proposal with regard to salaries in the public sector has the merit of drawing attention to the major problem confronting the country but has no chance of being adopted. The main reason IMHO is that the reform programme undertaken to date suffers from the unwillingness to face up to the most obvious reality one could imagine viz. the public sector is not homogeneous.
One cannot, for example, apply the same measures to the veterinary and meteorological services. Each area has to be examined in terms of function, organisation and output. Some could be wholly or partly privatised and salaries set relative to performance in the market place, as is the case in the private sector.
Such an approach would have the merit of attracting support from within the public sector itself which is slowly freezing up under the weight of the inconsistencies of the present approach and locking many into stultifying dead-end careers.
P.S. The tap water idea was started by the Danes during their presidency. I made the point simply to underline the incoherence and misleading nature of any such gesture in relation to presidency arrangements the cost of which is largely decided by the presidency itself rather than any actual legal requirements. I agree that if something is to be done, it should be done right.