The lead story in today’s Sunday Independent carries the headline “Lenihan admits VAT error cost us €700m”. It states that the Minister “has admitted that his decision to increase the VAT rate in last October’s budget was a “serious mistake” which has cost the state over €700m in lost trade to the North.” Without doubt, this story will further fuel the media’s intense (but misplaced) focus on cross-border shopping as a major source of our fiscal problems. Unfortunately, however, the story is highly misleading and clearly relies on a misinterpretation of the Minister’s comments.
Author: Karl Whelan
The ECB released what looks to me like an important document on Friday. In response to a February 26 Communication from the European Commission, it sets out the ECB’s recommended guidelines on “asset support schemes”, i.e. over-priced purchases of impaired assets by the state or under-priced state insurance of these assets. I have described my objections to these proposals a number of times and won’t go into them again here. A quick look at the ECB document didn’t reveal anything that made me more convinced of the merits of these proposals (though I may report back after I’ve had a bit more time to read the document in detail).
In the Irish context, my concern is that the EU and ECB documents seem likely to convince the government that these schemes should be pursued. However, there are other ways to go about dealing with our banking problems and a broader debate needs to be had than simply focusing on the details of how asset support schemes should be implemented.
During last night’s Prime Time, former Department of Finance official Cathal O’Loghlin made the following comments:
There’s a €16.5 billion gap to be filled by 2013 … If we go down the tax route to fill the whole of that, we’d be talking about a tax burden which is way above European levels … solving one-third of that problem by raising taxes would push our tax burden to the same levels as the Euro area average.
If true, these figures suggest that the room to use taxation to close our deficit is very limited and this should be a central issue in public debates about the fiscal crisis. However, I would not have characterised the tax burden in this way and thought I’d explain why.
I’m afraid I must disagree with my distinguished colleague Eamonn Walsh’s arguments in today’s Irish Times about the Anglo 10 loans. Walsh argues that “to state in the Dáil or elsewhere that the Anglo 10 “were given” €450 million is patently incorrect” and that “The most likely outcome is a wealth transfer that was somewhat less than €40 million.”
Let’s recall the details here.
In a further indication of the rapidity of the decline in Irish economic activity, the CSO‘s Live Register release reports a standardised unemployment rate of 10.4% in February up from 5.0% one year earlier. One reason the figure is so high is that unemployment rates from previous months were revised up (January’s rate was revised up from 9.2% to 9.6%) as they were benchmarked to the QNHS estimates for September-November. (Brendan Walsh had predicted such a revision in his post on the QNHS release.) Even controlling for that, the pace at which the economy is contracting is remarkable.