Budget 2015

There’s plenty to discuss from yesterday’s announcements but any OP is not likely to be followed by related comments.

All the relevant documents from the Department of Finance are here.

This is a summary of the aggregate budgetary changes (in €million).

Here are two vintages of the debt interest table.  First from the April 2013 SPU.

And this from yesterday’s Economic and Fiscal Outlook:

There are lots of opinions I’m sure on how this (temporary?)  improvement was used.

132 thoughts on “Budget 2015”

  1. So, what was the point of the two-company limited/unlimited structure and the routing through NL? Was it just to hide the accounts for trade secrecy? Or was it to avoid tax payable in the US?

  2. I see no reason to believe the improvement is temporary.

    The probability is that Ireland is in the early stages of another 20-25 years of strong growth. It is not certain, of course. Nothing is certain in the real world. Who’d have thought on the night of the World Cup final that Germany would be held to a 1-1 draw at home to Ireland? The main danger for Ireland at present is the miserable growth, bloated government, high taxation, awful demographics, loony-left liberalism, anti-Christianity and general uselessnesss of governance that is infecting many once-great continental European countries. France is the prime example, but others too.

    However, just looking at Ireland in isolation, all the stats look good.

    Ireland had continuous strong growth from 1958 to 1983 – a 25-year boom.

    then a recession, followed by:

    continuous strong growth from 1987 to 2007 – a 21-year boom

    then a recession, followed by

    continuous strong growth from 2012 to 20??

    Apart from the danger I mentioned above, I see no reason why the current growth spell should not last as long as the previous two, and lots of reasons why it should:

    (a) the balance-of-payments is in large surplus, so no external constraint on demand

    (b) competitiveness has hugely improved – Ireland has had the lowest inflation in Europe since 2007

    (c) the construction industry is at the bottom of its cycle – only 8k houses a year being built, about a quarter of long-term demand

    (d) unemployment is relatively high – it night seem strange to cite this as a factor for future growth, but the fact is that, when a period of growth commences, the higher unemployment is at the start of it, the longer the growth can continue before running up against labour shortages.

    No doubt in time, as the boom continues, bad habits and complacency will creep in. They always do, in all countries. Its called the economic cycle. Eventually, the boom will bring full employment, high immigration, but higher inflation and higher government spending. In the 1958-1983 boom, it was growth, growth all the way before these bad habits started kicking in around 1970. In the 1987-2007 boom, it was growth, growth all the way before these bad habits started kicking in around 2000. In this boom, it will probably be growth, growth all the way until the early to mid 2020s, then, as memories of the most recent recession fade, bad habits will start kicking in and another recession in the early to mid 2030s.

    However, as I said, continental Europe is a big worry. If it doesn’t get its act together, then the rosy scenario I outlined above is in danger. Anyone wanting to understand why Ireland’s growth is soaring and the country is oozing with optimism, while continental Europe is mired in low growth and pessimism, should look at the following figures. These are for the growth in government spending in REAL terms between 2007 and 2013.

    Ireland -13%
    Spain +3%
    Finland +4%
    Denmark +6%
    U Kingdom + 6%
    Netherlands + 8%
    France +9%
    Germany +10%

    It is scarcely credible that, given their budgetary situations, some of these countries increased public spending so much. France in particular. How can they justify such an increase in the current circumstances? No wonder they are growing at one-tenth Ireland’s rate. And George Osborne’s claim to be the slasher of ‘big government’ doesn’t look so hot either.

    For the second time in 25 years, Ireland going down the route of slashing ‘big government’ has paid off and resulted, not in the economic Armageddon left-wing commentators claim, but in an economic boom. You can feel the heartbreak oozing out of every word written by the likes of Fintan O’Toole, now that its dawned on them that this is so. And when will Paul Krugman mention Ireland next? Probably never. Indeed, i is not fanciful to believe that, if Ireland’s boom continues until Nov 2016 (very likely), it could be a factor in the U.S. election and swing it in favour of a pro-business candidate like Mitt Romney or Paul Ryan and away from the ‘big-government’ democrats.

    As for the political implications in Ireland, it pains me as a northern nationalist to say it, but it should be a shoo-in for FG/Lab. Michael Martin’s shifting FF to the left is proving a flop. Baldy Noonan has done a fantastic job and is turning out to be the greatest Limerick man since Sean South. FG should seriously consider replacing Enda Kenny with Baldy and bringing back Lucinda Creighton if they want to reap the full benefits of the economic boom.

  3. jto,
    I predict a 200 post thread with the following themes
    *the govt is cooking the books
    *giving away too much ot the rich
    *spending too little
    *should have adhered to the master-plan laid down by the EZ- DOCM in 47 posts
    *Double Irish will cause all the MNC to leave
    *We are all ruled by corrupt gombeen 70 year old teachers and we have no idea how to do anything right. Anyway our stats are makey uppy-MH in 67 posts
    *We are all doomed, doomed I tell ya- Corporal Seafoid.

  4. @ Ossian,

    The objective to was get the profits to zero-tax jurisdictions. The “double-irish” had no impact on tax paid in countries where these companies have their customers (UK, GER etc.) or where they book their sales from (IRE). The profits are attributed to the intangible assets and the location of that is key. Transfer pricing rules determine the profit allocated to each stage not tax residency.

    There are a myriad of ways of getting the profits to a no-tax jurisdiction. As long as the intangibles are located there current transfer pricing rules allow the profit to be allocated there. What companies want to do is to engineer a structure that doesn’t trigger tax payments along the way (mainly be avoiding have a permanent establishment in countries). That be can easily done for “digital economy” companies. Tightening around “double-irish” arrangements just means an alternative has to be put in place. That is not to say it is easy but the six-year transition period gives plenty of time.

    Of course, yesterday’s announcement was overplayed in the budget speech and lapped up by media outlets around the world. Perhaps they considered it some kind of victory. The Minister said ” I am abolishing the ability of companies to use the “Double Irish” by changing our residency rules to require all companies registered in Ireland to also be tax resident.”

    He cannot do that and the detail of the Finance Act will reflect that. What will be removed is the “trading exemption” to the test of incorporation. The “treaty exemption” will remain and necessarily so. Ireland cannot unilaterally decide that all companies registered here are tax resident here. In case of conflict, tax treaties determine the matter and the usual tie-breaker clause is the test of management and control.

    An Irish-registered company that is managed and controlled in France will be resident in France. Of course, companies don’t use France in the corporate structure shell games. But what about Jersey? Is it possible to have an Irish-registered trading company, owned by an Irish-registered holding company that also owns the intangible assets but is managed and controlled in Jersey? Where will the holding company be resident? Is this not a “double-irish”? We must await the detail but the headline writers don’t.

    Of course, for US MNCs all this profit is subject to their 35% corporate income tax rate anyway. The structures are all about creating a deferral of the payment of that until the profit is repatriated to the US (and ensuring as little tax as possible is paid in the interim). That is the heart of the matter. The “check the box” election offered by the IRS means this deferral can be easily achieved.

    What gets little attention is how the intangible assets were transferred out of the US in the first place. Current transfer-pricing rules means it is correct that an Irish trading company pays massive royalties for the right to sell based on these intangible assets. But how did the intangibles get to the no-tax jurisdictions in the first place? There was licensing agreements put in place between these intangible-asset holding companies and their US parents.

    If Google was to move its intangibles to Bermuda now there would have to be massive payments to the US parent to pay for the asset (and then a tax bill) based on the arm’s length principle. Early moves by Google back in the late 1990s put in place cost-sharing agreements before the commercial value of Google’s technology was apparent to tax authorities meant that the transfer was allowed at a price, which in retrospect, was extraordinarily low. A lot of the focus is how the transfers get to Bermuda but more attention should be paid to how the assets get there – and the country that allows them to go there!

    The OECD are focusing on this issue. Pascal Saint-Amans made all the right noises about the moves announced yesterday but he knows it will have no impact on tax outcomes. The OECD are hoping to address the problem with these structures by forcing companies to link their profits with substance. This is to try and prevent companies locating their high-profit assets like intangibles in no-tax jurisdictions like Bermuda. Under OECD proposals, companies will still be able to locate their assets in Bermuda but unless the staff who work with these assets are also there they cannot locate the profit there. The intention is that the profit must be co-located with the substance; not in a brass-plate operation with nothing more than paperwork. That is the intention anyway.

    Of course, countries are seeing this coming and are moving to make themselves attractive for these intangible assets. Thus we get announcements of “patent boxes”. Ireland is going for one and probably at a rate of no more than five percent. It looks like the effectiveness of the BEPS project will be undermined before it has even begun. This “patent box” announcement was far more significant than anything on the “double-irish” but didn’t garner the same headlines.

  5. Why is the tax buoyancy figure so low, in an economy that is growing at ~4% to 5% on an annual basis. Is this just caution or is it a true best estimate?

  6. @ Joseph,

    The “economy in Ireland” as measured by national accounts might be growing at 5% but the “Irish economy” that we actually see around us is not.

  7. Interesting stuff on Shire today. For those who don’t know, this company has over the years attracted a lot of press attention regarding its tax strategies.

  8. re tax revenue, the main reason for slower revenue growth in 2015 (3.1%) is the pension levy, which raised an estimated €590m in 2014, but this falls by around €475m in 2015. Adjusting for this and some other issues the Department says that tax revenue would grow by 5.5%
    Ireland’s potential growth rate has now been revised up by around 0.5% per annum over the medium term, highlighting the guesswork in estimating a structural fiscal balance for Ireland. Nevertheless it has to be done as Ireland is required to reduce any structural imbalance by over 0.5% of GDP per year and the Budget documentation is interesting in that regard.
    The output gap in 2014 is now deemed to be around zero (with an unemployment rate over 11%!) and the output gap rises to 1% in 2015, implying a cyclical fiscal surplus of around 0.5% of GDP. The actual forecast deficit is 2.7% so the structural deficit is put at 3.3%. That is projected to fall to zero by 2018. In addition Ireland has to adhere to an expenditure benchmark, meaning that government spending must rise at a slower pace than nominal GDP. In sum, Government voted current spending will have to fall steadily relative to GDP over the next 4 years whoever is in power, absent changes in the euro fiscal rules.

  9. Alan Ahearne’s assessment.

    http://www.irishtimes.com/business/economy/budget-decisions-framed-by-strong-economic-recovery-and-looming-election-1.1963337

    It seems to me that he has it about right. (One is prompted to the general conclusion that it – the budget – could have been a lot worse).

    The central question remains whether the political process will change i.e. that a consensus will emerge (i) that the tax base cannot again be “hollowed out”, to use the phrase of AA and (ii) that there must be a focus on investment which enhances the productive capacity of the economy and aids in running a sufficient surplus to begin paying down debt.

    The multi-annual elements introduced by the MOF should aid in achieving (i). The record on (ii) is miserable and is continuing. The argument continues to be about how to divide the cake with little attention paid to the fundamental need to increase it.

    It was, incidentally, remarkable to hear the MOF state on Prime Time that the only EU rule that applied to Ireland was that relating to the 3% budget deficit threshold as we were no longer “in a programme”. His opponent had either neither the knowledge nor the desire to contradict him. The same holds true of the programme leader. It will be interesting to read the Commission’s assessment.

    Lara Marlowe’s report on France shows that there is nothing new under the sun with regard to the management of the finances of a democracy.

    http://www.irishtimes.com/news/world/france-on-collision-course-with-brussels-over-budget-1.1963441

    Taking nine million households out of the income tax net, however, takes some beating.

  10. Dan,

    how can you have a economy operating at trend with an 11% unemplyment rate? Would that not imply that there was no excess supply in the labour market. Should somebody resp for the calcs be asked to explain themselves?

  11. @tullmcadoo.

    Yes the implied structural unemployment rate is very high and I remember in the late 1990s everyone argued that Ireland’s structural rate was also in double digits(it fell to under 5% subsequently of course). The ESRI have queried the European Commission approach to Ireland’s structural balance and as it is unobservable anyway it seems crazy to have made it a key cornerstone of the EU’s fiscal rules.

  12. @ DOCM,

    It was, incidentally, remarkable to hear the MOF state on Prime Time that the only EU rule that applied to Ireland was that relating to the 3% budget deficit threshold as we were no longer “in a programme”.

    Not sure what’s remarkable about that given that it is true. Under the EDP the only benchmark that must be satisfied is the GGB limit set out in the relevant Council Recommendation. Once a country is in the EDP no other benchmark applies.

    Upon leaving the EDP a country will be subject to the “balanced-budget rule” – a 0.5% of GDP improvement in the structural balance until the MTBO is achieved – and also subject to the “expenditure benchmark” – until the MTBO is achieved growth in expenditure is below the potential growth rate of the economy. Three years after leaving the EDP a country becomes subject to the debt-reduction benchmark. Ireland won’t leave the EDP until 2016.

  13. Dan McLaughlin mentions about that Govt exp will have to grow slower than nominal GDP over the next few years, fair enough.

    If you look at table 3 of the Econ and Fiscal Outlook:

    http://www.budget.gov.ie/Budgets/2015/Documents/141014%20Economic%20and%20Fiscal%20Outlook%20REV%202.pdf

    you will see that Govt consumption is forecast to grow at 0% in 2016, 2017 and 2018. This suggest 0% nominal growth and falling real G exp.

    Now this seems either naive or unrealistic.

    We have a slowly ageing pop, and a high school-going pop, with more demand for edu and healthcare exp.

    How will these needs be met with 0% nominal G exp growth??

  14. 0% nominal growth in Govt consumption suggests that the only way PS payrises can happen is for PS emp to fall further.

    Or else PS pay stays flat in nominal terms until 2018?

    What about increments? Surely they alone put small upward pressure on G consumption?

  15. @ Stephen,

    The text says:

    For the purposes of the budgetary projections … there is a technical assumption that voted expenditure continues at 2015 levels

    which makes them somewhat meaningless as projections.

  16. From afar, Irish interest rate assumptions (that the exceptionally low interest rates will continue indefinitely) are inherently optimistic. Look at some of the effects of today’s equity market falls:

    http://www.bloomberg.com/news/2014-10-15/debt-crisis-reawakens-in-european-bonds-as-greece-roils-market.html

    It would take very little to upset the cart. With Germany likely in recession again, the interest rate risks are again all to the downside. Anyone who understands interest rates knows that….

    Which is why Ireland shouldn’t get carried away anytime soon…..

    And there are all those known unknowns, etc. I liked this article in the Irish Examiner today.

    http://www.irishexaminer.com/viewpoints/columnists/gerard-howlin/yesterday-didnt-budget-for-the-looming-public-sector-pay-talks-291311.html

    “Fair wind” forecasting is all very well…..The Fiscal Council used to produce stress tested data a few years ago which focused on upside /downside capacity to absorb negative /positive shocks. Any of that publicly available these days? Relative analysis would be far more informative.

  17. @ Seamus Coffey

    I referred to a “rule” not a “benchmark”. You have set out the rules that apply. The MOF was – deliberately in my opinion – creating the impression that all we had to do was keep our deficit below the benchmark 3%. This may be understandable in political terms but not otherwise. To quote Michael Clifford in today’s Examiner;

    “The signposts, however, are somewhat confusing. He giveth here and taketh away there. He offers hints that social justice informs his politics, but he also shows that he can outbid all comers with a touch of auction politics. Too early to say yet whether he’s taking a road that leads anywhere but back to where we’ve come from.”

    http://www.irishexaminer.com/analysis/budget-2015-the-road-less-travelled-were-on-the-road-to-god-knows-where-291344.html

    There is little or no evidence that the current government has learned anything in terms of changing the mindset of the electorate with regard to managing the Irish economy.

  18. The other clear external interest rate threat is somewhat reflected of course in oil prices and fx.

    http://www.bloomberg.com/news/2014-10-14/get-used-to-strong-dollar-and-many-ways-it-ll-affect-investments.html

    At the IMF conference in Washington at the weekend, almost all FI CEOs were negative (US, European, Canadian in any event) and most senior FI economists are predicting a strengthening $ versus €, with some predicting parity in the not too distant future. Cheap oil (in $) and a strong $ is great for the US in the near term (and “importing inflation” via a strong $ is hardly an issue right now….). However, the opposite could very well be the case for Europe if a € decline is greater than the $ value decline in oil. More € will be required to buy $ oil.

    So May Ireland not be complacent!

  19. @ DMcL

    The issue you raise with regard to the structural deficit is an interesting one. My own conclusion, for what it is worth, is that it was chosen as the only rule against which no logical economic argument, as a cover for political unwillingness to act, could be raised apart, that is, from the difficulty in calculating it.

    What is really striking about the situation between the three main players is that, while Renzi is sailing close to the wind, the sails of Valls are flapping ahead of the coming storm, as indicated notably by the two fingers seemingly being given by his finance minister to the entire EU budgetary rule book.

    http://www.ft.com/intl/cms/s/0/f79cf99a-5460-11e4-b2ea-00144feab7de.html#axzz3GDo9txyR

  20. @DOCM
    It’s a form of ‘whatever it takes”, no?! As opposed to an Irish whatever you’re having yourself (or whatever which way you want us).

  21. @ Paul W

    Not quite! I think Renzi is playing a very clever game. The country that will end up isolated at the coming meeting of the European Council is France. The markets will have given everyone a right good fright, especially the ballooning of Greek bond yields, in the meantime.

  22. @DOCM

    I suppose it depends on what is considered more important. Fiscal policy is the only macro tool available to an economy in a monetary union but euro members have effectively chosen to give that up too. But if monetary policy is effectively at its limits (QE may not happen and probably wont do much if it does) the pressure to bust the fiscal rules grows. I am not sure how this tension is resolved.

  23. Ultimately, restructure. In the end, it’s about debt service, not economics (directly). However, it’ll be a long time yet before that break point is reached.

  24. @ DMcL

    Neither am I! However, I suspect that it will be a classic EU fudge with everyone going home a victor, especially Juncker who will get his €500 billion investment programme with the Germans pretending that they do not have to cough up the major share of it.

    Profligate governments, however, will still have no choice but to bite the bullet.

  25. Time to Tear up the Envelope?

    Posters may know that I have regularly adjusted DoF forecasts on the back of an envelope via a simple formula and compared this with their forecasts and actual outcomes and, so far, the envelope coming out as more accurate. This goes back to an old conversation with @grumpy and a paper he linked too.

    The envelope is really an optimism filter which says that on average Government forecasts are too high by:

    0.2% for the year we are in
    0.8% for the following year, and
    1.5% for the year following again.

    I do have subjective thoughts about this but first I’d like to look at how the envelope is doing.

    2010 DoF growth forecast (GDP) as of budget
    2010 -1.3%
    2011 3.3%
    2012 4.5%

    Envelope said:

    2010 -1.5%
    2011 2.5%
    2012 3.0%

    Outcome (according to EU Commission, Spring, after the fact):

    2010 -0.4%
    2011 0.7%
    2012 0.9%

    2-1 to the envelope.

    2011 DoF growth forecast (GDP) as of budget
    2011 1.7
    2012 3.2
    2013 3.0

    Envelope said:

    2011 1.5%
    2012 2.4%
    2013 1.5%

    Outcome:

    2011 0.7%
    2012 0.9%
    2013 -0.3%

    3 – 0 to the envelope.

    2012 DoF growth forecast (GDP) as of budget
    2012 1.3%
    2013 2.4%
    2014 3.0%

    Apply the envelope and we get:

    2012 1.1%
    2013 1.6%
    2014 1.5%

    Outcome (so far)

    2012 0.9%
    2013 -0.3%
    2014 1.7% (forecast)

    So currently 3-0 to the envelope with 2014 yet to come in (but clearly eyebrows North of the artificial border are being raised here so see below: I’m just consistently putting in the facts as they stand for now).

    2013 DoF growth forecast (GDP) as of budget
    2013 0.9%
    2014 1.5%
    2015 2.5%

    Apply the envelope and we get:

    2013: 0.7%
    2014: 0.8%
    2015: 1.0%

    Outcome (so far):

    2013: -0.3%
    2014: 1.7% (forecast)
    2015: 3.0% (forecast)

    So the envelope is currently losing 2-1 on that.

    And to bring it up to date:

    2014 DoF growth forecast (GDP) as of budget
    2014 4.7%
    2015 3.9%
    2016 3.4%

    Apply the envelope and we get:

    2014: 4.5%
    2015: 3.1%
    2016: 1.9%

    Outcome (so far):

    2014: 1.7% (forecast)
    2015: 3.0% (forecast)
    2016: N/A

    So currently 1 – 1.

    But at last the trend seems against the envelope, so is it time to tear it up?

    I did note from the start that my concern was that the envelope (which basically says things will turn out worse than expected) would miss the point of inflection: though it still may be the case that things will not turn out as well as predicted and I shall simply have to wait and see for that.

    But here’s my quick go at a narrative which I put out there (and to some extent, very politely, contra John the Optimist whose opinion I would be interested in) to see what people make of it.

    Essentially I think Keynes and Keynes flavoured economics (eg Koo) has done very well.

    Around the the bailout, 2010, it was clear that the cuts would have a *worse*impact than expected due to the balance sheet recession, a general sense of gloom, our trading partners doing much the same simultaneously, the actions of the ECB, etc. The 2010 figure above is very interesting to me as it looks like Ireland was starting to do better there but that is the year in which Europe turned to austerity, Olli Rehn began to boast about how they were doing better than the USA, the ECB began to worry about inflation, raised interest rates and more generally everyone realised that the ECB wasn’t prepared to be a lender of last resort.

    But even then it was pointed out in a paper ‘Can Austerity Work’ (must find author, Felix Salmon?, VoxEu?), that while (within its own terms) the general answer was ‘no’ (see EU/EZ unemployment for this), Ireland was different (also pointed out on the blog). This is due to the famous small, open economy with lots of Foreign Direct Investment. So as the UK under Osborne abandoned austerity and devalued and as the USA also didn’t do full austerity and both did QE, Ireland, has done generally better than the EU/EZ. But there was a four year lag in this and as the DoF, IMF, EU, OECD you name them, year after year called ‘jam tomorrow’ and even though the jam appears to be being spread at last they have lost credibility in their analysis.

    Put it another way, I don’t believe it was (generally) supply side reforms that made Ireland as most of the exported goods haven’t really been affected by that. I’m sure Michael Hennigan is on top of these figures.

    Where I do agree with JtO is that missing out on Ireland’s underlying strengths (including demographics) led to thinks like construction, and employment in construction, being allowed to fall too far too quickly: see lack of housing and social housing in Dublin.

    But very crudely, the Irish economic cork got pushed a lot further down than people in authority were prepared to face and is now bobbing back up (I hope). It’s good to be going in the right direction of travel for now but unemployment still over 10% and, looking at the streets of Phibsboro, a lot of local damage make this a tough recovery to love.

    I’m not a fan of just saying forecasting is for the birds. For one thing too many important decisions and calculations of debts levels depend on these things so they should be argued over. Also, as indicated above, I do think some analyses have done better than others and so an, ‘they’re all the same’ does not seem satisfactory. At the risk of being mean, the DoF in 2010 was forecasting growth of 4.5% in 2014. I hope they’ve had a chance to really think about that.

  26. @ Seamus C

    Thanks for the comments on the tax structures. Much appreciated. Particularly considering the nonsense written by our Financial ‘journalists’ on the matter.

    @ JTO

    You paint a bright pretty picture. I want to believe. Another Celtic Phoenix boom would be perfect.

    My nagging doubts revolve around.

    1) The over priced nature of most equities and property in a lot of major cities.
    What trick is left for ‘policy makers’ to pull if/when there’s a sharp correction in any/all of these?

    2) The slow/no wage growth in Ireland and a lot of other countries.

  27. Apologies for the break.

    Yes, Unfeasibly, you are correct. My mistake (I do not claim to be an economist). However, I have to say that “importing deflation /inflation” is an area where traditional economic definition is too simplistic and needs rethinking in my view. A confusing area and not straightforward. My “confusion” partly stems from the insertion of oil and commodities into the current equation. Difficult to reconcile the variables in a simple manner (especially when I am looking to move Euros into $)

    Here is a good article.

  28. @ JtO,

    Only digesting your initial comment now. The point about “temporary” was not in relation to the broader economic recovery; it was specifically in relation to the rapid improvement in the public finances. The public finances seem to be recovering fast; my intimation was that the public finances are improving faster than the economy because of factors that are somewhat artificial.

    It is fairly obvious that some of the recovery in the public finances is not not related to the real economy. The change in national accounting methodology in ESA2010 that was applied by the CSO during the summer saw Irish nominal GDP increase by €11 billion (c.6%). This was a level effect not a growth effect but it improved the appearance of fiscal ratios. The European Commission cannot say that the deficit is smaller because of methodological changes mandated by Eurostat because Eurostat is an agency of the European Commission!

    The reduction in debt interest expenditure is not related to the fundamentals of the economy. Repaying the IMF loans that carry an interest rate of 4%+ is completely sensible. Money markets lending to us at 1.63% to do so is not sensible. Mario Draghi’s “whatever it takes” comment is the factor here not the growth of the Irish economy. Central banking is a black art (to me at least) and subject to change.

    Next, the first table in the OP shows that since last Friday’s White Paper the government has decided to include €250 million of “special dividends” for deficit reduction purposes. These dividends were known on Friday but only put into the fiscal arithmetic on Tuesday. They are from asset sales by Bord Gais and the ESB. These sales are once-off while the tax cuts and expenditure increases in yesterday’s budget are permanent. We cannot sell again in 2016 but we have to cover the budgetary extensions every year. [As a side note who got the sums wrong in the National Lottery? €70 million is a pretty big sum.]

    And then there is the Central Bank surplus. In 2007, the Central Bank surplus was €98.5 million. The forecast for 2015 is that the Central Bank surplus will be €1,400 million. Is this €1.3 billion increase in the Central Bank surplus permanent? In case there is any doubt the the answer is no!

    For 2015, the DoF have factored in an increase in VAT receipts as a result of the change in the taxation of some services such as subscription TV. This is expected to result in an increase of receipts by Ireland of around €150m. While this effect is permanent it can only have a once-off improvement in the level of the deficit. This level effect was used this year.

    There has also been a reduction in expected social welfare expenditure because of a greater than expected reduction in unemployment-related transfers. Standard macro-theory points that these should be used as “automatic stabilisers” not as monies to be used to increase expenditure (such as the partial restoration of the “Christmas bonus”) as the economy improves.

    Then there is the apparent 5%+ increase in output (GDP). Oh to get a measure of output in Ireland absent the effect of the MNCs. Look at the endorsement letter from IFAC.

    I am not doubting that the Irish economy can grow steadily over the coming years. I think it can. I am doubting the permanence of the fiscal sums that give a deficit of less than 3% of GDP for 2015. Maybe growth will step in to take up the slack but maybe it won’t.

    Tuesday’s announcements increased the deficit by 0.6% of GDP – €1 billion. That is €1 billion extra we are borrowing because of decisions we made. Maybe economic growth will step in and pay for this largess. But maybe it won’t.

    If the economy is growing rapidly why is such an expansionary budget be necessary? [economically as opposed to politically] As page 16 of the Economic and Fiscal Outlook says this is a “€1,050m Budget package” on the expansionary side. And why is such a derisory amount of that expansion devoted to capital expenditure?

    What happened to the idea of counter-cyclical policy?

  29. http://www.irishtimes.com/business/sectors/financial-services/court-approves-aib-s-5bn-share-capital-reduction-1.1964895

    Here is a further €600 million gift to AIB staff and pensioners, who (the pensioners) receive an average of €30000pa (that is probably before the State pension, another 11,700, bringing the average to over €40000 in the case of those over 66). All this on top of the €1 billion siphoned off from the €21 billion AIB bailout to bump up the AIB staff pension fund.

    This State has no shortage of money when it comes to some sectors.

    “This followed assurances from the company [AIB] in relation to a deficit of about €600 million in the main defined benefit pension scheme covering 17,500 members, 9,000 of whom are current employees. The average pension being paid out to about 3,900 current pensioners is €30,000 per annum, the court heard.”

    Assurances!

  30. @ Paul W: “My “confusion” partly stems from the insertion of oil and commodities into the current equation ….”

    Not to worry! When the bbl ‘drops’ – a lot of smart folk will be ‘confused’… You know, as in – “No one saw this coming!” Yeah!

    Its when the bbl levitates – that’s when they will head for the Pampers counter. Bit late. But …

  31. Michael Noonan deserves credit for making the Double Irish move as does Feargal O’Rourke of PwC for the earlier advocacy of the move.

    It will take time for some past defenders of the conventional wisdom to adjust to the significant changes underway while too much focus on minutiae can result in missing the big picture.

    Like crime, tax avoidance and evasion will always exist but the environment is changing for big tax avoiders.

    1. “We comply with all laws” has been the mantra but it has often depended on a more favourable treatment by revenue authorities than that given to domestic firms.

    2. Amazon’s and Apple iTunes’ VAT regime is set to change and it would be foolish to predict that Starbucks, Apple and so on will continue to operate in their biggest European markets paying little tax.

    3. Without changing any law, the European Commission will be a threat in future.

    4. Patent box regimes are no El Dorado – the Commission again will set the parameters and several more countries will compete for the business.

    Replacing the Double Irish with Knowledge Development / Patent Box – Part 2

  32. @BW Snr
    Complicated further by rising prices and no wage growth vs official calculations of (low) inflation…..are 0.1% type inflation measures credible particularly when crime, prosititution adjustments “glamorize” the story further….plus the dodgy accounting as Seamus also points out above.

    Ref also Seamus’ 5% growth in the economy in Ireland. Presumably official Irish Govt figures use this basis as it’s foundation…..no account of looming deflation from Europe, etc. when that reality strikes (late), what then? Then, how will the international wave of deflation interact with local bubbles…eg inflating Dublin house prices drives by lack of supply?

    A quagmire of contradictions.

  33. No sign of any give on the part of Merkel! No surprise there!

    http://www.ft.com/intl/cms/s/0/fedbfcfc-5518-11e4-b616-00144feab7de.html#axzz3GDo9txyR

    The basic distinction between Germany and the economies in difficulty is that it is the unions that are part of the traded economy that call the tune in agreeing policies with the government and business. Indeed, this relationship is hard-wired into the German approach with the major industry unions having a pragmatic approach to wage restraint and changes to ensure continued competitiveness. The very opposite is the case elsewhere. How this handicap can be overcome remains unclear.

  34. Paul, the author would be accused of ‘exaggeration’ and ‘not engaging with reality’ if it were the plot of a pulp-fiction novel, displayed for purchase in an airport book-shop!

    Its difficult to believe that senior civil servants and their technical advisors are NOT aware that our developed and developing economies are actually ‘stagnating’ – again! Its hardly a novel phenomenon. By my reckoning we have had at least five such economic episodes, one in each decade, since the late 1960s. This latest appears to be the longest. And each time we have ‘bounced out’. Its just that each successive ‘bounce’ seems to have been a little lower than the previous one; ie: the Diminishing Marginal Bounce! Could you put that Newtonian variable in a ‘growth’ regression equation? 😎

    It may seem trite, but this one is different and its not the last. That ‘pleasure’ is probably a decade (if we’re lucky) from now.

    You do not (or should not) attempt to solve an economic problem (declining consumer demand + excess supply capability) by continuing to use policies that have repeatedly failed (in the past) to provide a lasting solution for that problem. Which is exactly what is currently, being both advised and enacted. Maddening. But there it is.

    Cheers.

  35. Yes, DOCM, you’re quite right: workers demanding that even a small portion of productivity gains go to them is surely a handicap to be overcome.

  36. @ DOCM: I hesitate to recommend reading* to update ones mindset, but this bald-faced economic propaganda deserves a robust response.

    “[this] relationship is hard-wired into the German approach with the major industry unions having a pragmatic approach to wage restraint and changes to ensure continued competitiveness. The very opposite is the case elsewhere. How this handicap can be overcome remains unclear.”

    Hardwired? Hardwired how? Please explain this inane comment!

    Handicap? What handicap would that be?

    Opposite elsewhere? Like in Ireland, UK and US? Indeed. Three bright and shining models of what? Please explain how this ‘opposite’ has come about.

    Pragmatic approach? Now what ‘pragmatic approach’ would that be then? Again, spell out the politics of pragmatic economic approaches for us.

    DOCM, how many times do I (and some others) on this blog, have to state that this quaint notion of ‘competitiveness’ was promptly ‘bashed, burned and buried’ the moment China and India were given (almost) unfettered access to the developed economies of US and EU. How many times?

    The so-called global trade ‘playing-field’ was not leveled – but firmly tipped-up against us. How many times DOCM? We can never again compete economically. Its over for us! How many times?

    If you believe in neo-Liberal economic ideas, values, beliefs, or whatever, please just come out and say so. These hegemonic economic ideas have caused, and continue to cause, great political and social upheavals. Millions of persons have been harmed – many have actually died as a direct consequence. And to what end? To what end?

    How many times, DOCM? How many times?

    * (please, only read this text if you are genuinely desirous of learning something unsettling. Otherwise – just carry on)

    Prasad, Monica. (2006). ‘The Politics of Free Markets: The Rise of Neoliberal Economic Policies in Britain, France, Germany and the United States’. University of Chicago Press.