Author: Philip Lane

Read the VOX article by Piketty, Saez and Stantcheva here.

The details are here.

available here.

The FT has a long editorial here.

Willem Buiter outlines various euro breakup scenarios here.

The WSJ reports on contigency planning by European central banks (including the Central Bank of Ireland) here.

On the budget documents is The Economic and Fiscal Outlook. This goes beyond the details of the 2012 Budget and provides guidance on the government’s medium-term plans and projections out to 2015.

Some of the noteworthy details in this publication include

• pages D16-D17 show how the government intends to meet its revenue targets without raising income tax rates or touching income tax bands or personal credits (and also no more increase in the top VAT rate).  What is required is a big increase in local charges (property tax etc) and other measures to broaden the tax base (cutting back on various income tax reliefs, reduction in tax related costs of private pension provision, broadening of PRSI base).
• Table 11 on page D19 shows the evolution of various expenditure and revenue categories over 2010-2015

1. total revenue very flat as a ratio to GDP (34.6 percent of GDP in 2010 and 2015)
2. government consumption down from 17.0 percent of GDP in 2010 to 13.7 percent of GDP in 2015
3. public investment (row 21) down from 3.7 percent of GDP in 2010 to 1.4 percent of GDP in 2015
4. social transfers (row 18) down from 18 percent of GDP in 2010 to 13.6 percent of GDP in 2015
5. interest payments up from 3.1 percent of GDP in 2010 to 5.7 percent of GDP in 2015

• Table 14 on page D23 shows the decomposition between cyclical and structural components. Here, the government is using the official EU estimate of Ireland’s level of potential output and, as in previous publications, is quite critical of this measure, especially since it implies that Ireland will be operating above potential in 2014 and 2015.  It would be desirable for the government to also report its own preferred measure of potential output, since the split between structural and cyclical imbalances is so critical in interpreting the fiscal position. Going further, it would be desirable for the government to indicate the role of ‘special factors’ in determining the underlying structural fiscal balance. Just as the property boom, relatively high inflation and the large current account deficit led to a revenue windfall during the boom,  the usual relation between the fiscal balance and GDP is distorted during this adjustment phase due to deleveraging, the under-shooting of construction adjustment, real exchange rate depreciation and external rebalancing.
• Page D15 outlines risks to the outlook.  Under the Troika MoU, the fiscal targets are minimum thresholds. It would be interesting to know the contingency plans in the event that an undershooting of GDP requires further spending cuts or tax increases. (That said, it is possible that the existing spending and revenue targets have implicit built-in contingency allowances on a prudential basis.)