Government Finance Statistics Quarterly Results Post author By Kevin O’Rourke Post date January 24, 2016 The 2015 Q3 data are available here. Dan O’Brien comments on the figures here. Categories In Fiscal Policy 18 Comments on Government Finance Statistics Quarterly Results ← Upsetting the applecart → A Brief Reminder: Macroprudential Conference this Friday, January 29th 18 replies on “Government Finance Statistics Quarterly Results” It’s more than a specific set of numbers. George Osborne has a fully operational office of budget responsibility available to him and he still managed to craft an entire autumn statement stunt around what was essentially one spike in tax revenue. Forecasting and projections and the mania for medium term fiscal strategies have created a veneer of Technocracy around allocating money that hasn’t arrived yet. UK systems of budgetary control are as antiquated as the Irish. Indeed, we are simply applying an inherited British system, the so-called Westminster model. The one addition, courtesy PR and multi-seater constituencies, comes from across the Atlantic i.e. an Irish version of pork barrel politics. Up [insert county as appropriate]! (The leaders at the moment are Mayo, Wexford and Limerick, closely pursued by Tipperary). This is no way to run a country with the population of a medium-sized, if not small, city in international terms. The fundamental policy question is clear-cut, as made obvious by the Commission. “Establishing an effective spending control mechanism is crucial for prudent and counter-cyclical fiscal policy making. With the introduction of a medium-term expenditure framework (MTEF) in 2012, expenditure ceilings were expected to operate as anchors of prudent fiscal policy making over the medium term. However, while specifying procedures and conditions for revisions, existing legislation and relevant circulars, leave ample room for changing the ceilings in a pro-cyclical manner as testified by recent experience.” Our esteemed Taoiseach was questioned on the matter on RTE at midday; and failed to answer the question. The answer is equally clear-cut, based on the experience of a country which went through a similar but much smaller crisis. http://tinyurl.com/gw3odr2 Will it happen voluntarily? The answer, on the basis of the experience of the past five years, is no. The emphasis in all the media and other commentary has been on two aspects (i) same old story and (ii) external risks, accentuated by the open nature of the Irish economy. The analysis ignores the point to which Dan O’Brien has drawn attention i.e. in international institutional terms, the Irish economy is no longer an open one but part of the Euro Area. Neither the politicians, nor the electorate, appear to have grasped this. Future developments, therefore, will depend on whether the “links that link and the bonds that bind” turn out to be an adequate surrogate for the failure to grasp the budgetary nettle at a national level. re: New ‘Expenditure’ rules as mentioned in Dan O’Brien’s article. “For instance, they insist that additional revenues which arise owing to any kind of windfall be used to cut debt and it is set in stone that the only way spending growth can exceed the very low benchmark level is if new taxes are imposed to cover all of the additional costs.” I confess that I do not understand these new ‘expenditure’ rules. I would like to know, specifically, if receipt of monies from a partial sale of AIB (or other banks) is captured by these ‘expenditure’ rules. If the receipt of such monies cannot be spent over and above the normal expenditure ceilings, it seems very egregious that such a windfall (if it may be described as such) is captured by this ‘expenditure’ mechanism. Particularly so, as the cause of the high debt/GDP is in large part due to the ‘wind-storm’ expenditure caused by the same banks, and partly at the insistence of major Eurozone institutions. Still, I doubt that Ireland put up much of a fight to be allowed to spend such ‘windfall’ receipts on infrastructure including public housing that has been starved over the past 8 years. Much better to be seen as best boys in the Eurozone class, and use any resources for tax cuts for the better off. Draghi’s 1.5 trillion and counting welfare cheque for the 1% sets the ‘ordre du jour’. I think the point to which Dan O’Brien has drawn attention is not that the economy is no longer open. It remains one of the most open economies in the world. We import most of our goods and a large part of our services. We fund this through exporting, even if the raw numbers on Irish exports exaggerate the benefit to the Irish economy. And a very large part of our trade is with non-Eurozone partners. The point is that membership of the Eurozone has throttled Irish fiscal sovereignty. All one ever wanted to know about the EA budgetary rules; and were afraid to ask! http://ec.europa.eu/economy_finance/economic_governance/sgp/index_en.htm The rules, not entirely new but the result of a process of coming to terms with the implications of running a single currency, are, as Dan O’Brien says, “in fairness, hideously complicated”. But the central message is simple. In a well-managed economy, a government does not “spend it when it has it”. Instead, it puts aside reserves in good times for the rainy day on the basis of broadly-based taxation income which it knows will not collapse entirely in the event of a major economic downturn. This avoids having it go cap in hand to be bailed out courtesy the “kindness of strangers”. The numbers coming out of the US look dreadful. Banks are nursing huge oil sector losses over loans granted when the price was above 100. the Fed can’t generate target inflation. Sales are down after 4 years going nowhere. We could be in for a pretty awful 2016 . Ireland is just not ready for any downside. Just on a slght tangent, but has anyone else noticed that, with Dan O’Brien, Brendan Keenan and Colm McCarthy on board, the quality of the economic commentary in the previously much-reviled Indo is superb? I won’t claim that I agree with every pronouncement of these “wise men”, nor do I approve of how they coyly avoid addressing some issues, but they continuously provoke one to pause for thought and to question long-held assumptions and contentions whose familiarity and comfort in use may have outlived their actual practical usefulness. Commenters here frequently link to pieces by these three gentlemen, but it is good that one of our senior contributors on this site is also linking directly – as in this post. Generally, the comments below the line on their pieces in the Indo are totally scattered and inane. But almost always their pieces deserve engagement and comment and, following the elevation of our proprietor here, this is probably as good a forum as any. Even the smallest efforts that might inform, broaden and deepen the public economic debate, particularly now in the run-up to the general election, would provide a very valuable public service. DOCM: “In a well-managed economy, a government does not “spend it when it has it”. Instead, it puts aside reserves in good times for the rainy day on the basis of broadly-based taxation income which it knows will not collapse entirely in the event of a major economic downturn. ” A ‘well-managed economy’ is one where the Gov of the day spends, spends and spends – on the ‘desrving’ – you understand. How else do you expect them to be re-elected? Mind you, the monied ones do quite a bit on spending too – on the approppriate political party/s, that is. Saving is for pussies! Our economies are headed down-hill (that is: economic rates-of-growth are in long-term secular decline) so the only option is to borrow more and more and more fiat credit until even that has no positive effect – that is, economic rates-of-growth are consistently below 3% p/a, compounding. So, the lenders simply create more fiat money and give it to themselves. The undeserving – are by definition, undeserving. They also do not vote very often! Make no mistake about this, all our parliamentary politicians, whether party or independent are irredeemably addicted to spending taxpayer revenues. No anti-spending rules – how-so-ever well crafted, will deter them. Think: eels coated in Fairy Liquid! Parliamentary politics is about Realism – bums on seats. All else is Bullshit! In reference to the recent comments from FG about reducing income taxes to “US levels” have they factored in that we do not have a US dollar, an international reserve currency that we could just tell the central bank to print some more QE when we get into a spot of bother. Also our corporation tax rate is much lower. Have they lost their senses? When you have a health system creaking at the seams, an education system in decline and little or no public housing then you reduce taxes so that a few consultants based in the US will move back to Ireland. Yes that is what a “safe pair of hands” is all about. The world economy seems to be descending into a deflationary spiral that will hit Ireland because of our debt levels particularly hard. If there are any extra funds in the kitty spend it on reducing debt or investing in the future by building houses for ordinary people that they can afford, increasing expenditure on our education system and improving the affordability of education. This government has introduced property and water taxes, eliminated rental tax relief and significantly increased taxes on tobacco and alcohol. All these taxes are deeply regressive and effect the poorest disproportionally hard. They have eliminated grant support for masters and postgraduate degrees without replacing it with loans hence ensuring that our teachers and higher professionals will now only come from the elites. Their pandering to the rentiers ensured that rent subsidies for the unemployed were set way below the market rents in the Eastern Dublin region hence creating a London like purge of vulnerable people from Dublin and its suburbs. Their pandering to the legal profession means that everybody now has to pay an increasing subsidy in their car insurance to a small elite group. Their solution is to decrease income taxes the one progressive tax we have. @DOCM re: EU Budgetary Rules In summary the rules amount to -pay the bondholders first-whether being paid out of stretched finances or out of ‘windfall’ or hard earned extra income, the entire benefit must go, as first priority, to debt reduction. I was aware of the debt reduction and deficit rules, but not aware until now of the expenditure rules, which rule in effect dictates that any extra revenue is uses for debt reduction, as that revenue cannot otherwise be spent, due to the expenditure rule. Ergo, pay the bondholders first, throughout Europe. Frankly it is an appalling abrogation of the right of democracies to decide how to run their countries and economies. Not only are the debt collectors able to charge interest, but the EU and EU institutions have lined up to ensure that they paid first, before the other requirements of societies. Old Europe has sided unequivocally with the debt collectors, consigning young Europe to a future of lack of employment, lack of investment and lack of a future. These rules, and in particular the expenditure rule (so far as it is understood) are a negation of hope for Europe. @Jules, Unfortunately a majority of voters appear to be in favour of, or can be be persuaded to vote in favour of, these policies. Last May the Tories and UKIP got almost 50% of the vote proposing to pursue similar policies – with a few dog-whistles thrown in. Get used to it. When one looks at the range of clowns purportedly advancing progressive policies one doesn’t know whether to laugh or cry. On Global Financial System Statistics: Former BIS Chief Economist Warns of Massive Debt Defaults, Need for Debt Jubilee; Fingers Europe as First in Line Posted on January 26, 2016 by Yves Smith When you hear an orthodox economist, particularly one who was early to warn of the dangers of real estate bubbles around the world, speaking of a debt jubilee as the best of bad option, you know a crunch is coming. Here is the key quote from William White, former chief economist of the Bank of International Settlements, in an exclusive interview with Ambrose Evans-Pritchard of the Telegraph: ‘The only question is whether we are able to look reality in the eye and face what is coming in an orderly fashion, or whether it will be disorderly. Debt jubilees have been going on for 5,000 years, as far back as the Sumerians.’ http://www.nakedcapitalism.com/2016/01/former-bis-chief-economist-warns-of-massive-debt-defaults-need-for-debt-jubilee-fingers-europe-as-first-in-line.html Following The Sumerians, prob best to have the odious financial system debt de-conflated from the sovereign, with a barrel of cheap oil and a lucifer at the ready. 2016 is going to be a volatile ride. Wall St is expecting Janet to pull a rabbit out of the hat. The cupboard is bare. The ZIRP rally looks overbought but everyone is afraid to tell the horses. On the subject of the kindness of strangers! http://www.dailymail.co.uk/news/article-3418407/Leaving-EU-damage-economy-warns-Bank-chief.html Whatever one’s political views, the sums have to add up. In the case of Ireland, we do not even know what they are with any certainty. This is a failure of those charged with keeping track of them. Until they come up with credible answers, divergent political camps will be arguing past one another; to the detriment of all concerned. Jules, in the end of the day, individuals make better decision with their own money rather than giving it to some faceless bureaucrat to pour it down the drain. I am voting for any party that gives me more of my hard earned back. @Tull I am not sure about that any more. Just look at all the money pumped into the stock market and the signs of deflation on the horizon. Cliff Taylor on the irreconcilable i.e. between election promises and the capacity to fulfill them. https://www.irishtimes.com/opinion/cliff-taylor-if-you-ask-canvassers-one-question-it-should-be-this-one-1.2515625 “Then there is the question of how we pay for it all via taxes. Eliminating USC, neutering the residential property tax – by fixing valuations until 2019 – and avoiding any mention of higher charges for water or anything else means we will narrow in our tax base again. This time it won’t rely on transactions based on property sales. Instead we will rely on the fortunes of 10 multinationals and around 150,000 PAYE and self-employed taxpayers who earn over €100,000. These two categories are now responsible for one quarter of all tax revenue collected – and rising.” The sudden change of direction by the MOF with his talk of a “rainy day fund” would suggest that there is a growing realisation that even an Irish electorate finds the general approach to the election of all the parties too much to swallow. The message it sends on the mediocrity of the Irish political class in general is, unfortunately, nothing new. @ Tull I think the high leveraged SME’S and citizens of Ireland would rather the state used more of their income for childcare or health during the boom years. They would had 3 holidays instead of 4 sure, but would have got less leveraged and likely be net beneficiaries. Individuals can be as dumb if not dumber with money. Comments are closed.