The 2015 Annual Report of the CBoI is available here.
There is lots in the report but one point that should be noted is that the €1.8 billion transfer from the Central Bank’s surplus to the Exchequer comes mainly from transactions with the Exchequer itself (interest income) and the NTMA (capital gains on bond sales) so is circular in nature.
It seems the European Commission are continuing to ask fresh questions of Ireland on the Apple State Aid case with Commissioner Vestager telling a European Parliament committee yesterday that she did not know when the case would be ready for a decision.
The Financial Times have devoted an article in their ‘The Big Read’ series to the case. See here.
Lots of data published today. From the CSO:
The Central Bank have the latest mortgage arrears statistics. The NTMA issued a six-month T-Bill at a yield of –0.22%.
The Foundation for Fiscal Studies awards an annual prize to recognise outstanding contributors in the area of Irish fiscal policy. A prize of €1,000 will be awarded, together with a commemorative Gold Medal.
Nominations are invited for work completed during the period 2014 and 2015 which has added to the public knowledge or understanding in areas such as taxation, public expenditure and other related fiscal policy topics. These contributions may include research papers, reports, books, book chapters, blog posts, opinion pieces or any other method which has publically provided new and relevant insights into these topics in Ireland.
Further details in relation to eligibility are contained in the attached call for nomination.
Last year’s prize was awarded in September 2015 to Rónán Hickey and Diarmaid Smyth for their paper – ‘The Financial Crisis in Ireland and Government Revenues‘ – which is available to read on the FFS website by following the link.
The authors presented their paper and received their prize from Minister Harris at an FFS event in the Mansion House – details here.
Interested parties should note that the closing date for nominations is 30th April 2016 and that nominations of worthy work are encouraged from any party including the authors themselves. Nominations for the Prize should be made by email to firstname.lastname@example.org.
The European Commission have responded to the recent interventions by the US Treasury into the tax related state-aid investigations with this letter from Margrethe Vestager to Jack Lew.
On one of the issues raised by the US Treasury the response is as would be expected:
I also hope we agree that the taxation systems of EU Member States entitle them to tax the profits generated by companies operating in their territory, including US companies. The Commission has the duty to ensure that these rules are applied in a non-discriminatory manner by excluding preferential treatment in any form that constitutes incompatible State aid. This does not put into question the US taxation system or go against double taxation treaties concluded by EU Member States.
So we await whether DG Comp are going to conclude that the estimated $120 billion of profits earned by Apple Sales International between 2004 and 2013 were generated in Ireland and so should be taxable in Ireland as opposed to only those profits earned by ASI’s branch in Ireland. The Commission could also conclude that the allocation of profit to ASI’s Irish branch was “wrong” but if that was to be the case then this ongoing exchange of letters would have been wholly disproportionate.
The Commission are also investigating Apple Operations Europe (AOE). AOE also has an Irish branch which undertakes manufacturing of a specialised range of computers. However, ASI is the global hoover of Apple’s profits – it contracts with third-party manufacturers in China (with all agreements signed in the US) and sells on the products to Apple distributors at an “arm’s length price”. The difference between the fee paid to the manufacturer and the price charged to the distributor is considerable. Hence, the estimated $120 billion of profits earned by ASI between 2004 and 2013, with 90 per cent of that occurring in the final four years of the period.
ASI is a subsidiary of AOE so it is possible that the Commission could rule that the profits are taxable in Ireland when they are distributed as a dividend by ASI to AOE. This could potentially bring our 25 per cent Corporation Tax rate into the equation. But that seems very unlikely. The focus will probably be on the trading profits earned by ASI, though if it ends up being a dispute over the profit allocated to ASI’s Irish branch we really will be left wondering what all the excitement was about.
How long more will they keep us waiting? And if a decision is published by DG Comp is there a timeframe within which an appeal to the CJEU must be made?
One of the less notable events over the weekend was the publication of the European Commission’s Country Reports. The report will form the basis for Country-Specific Recommendations (CSRs) which will be published in May. Here is the Country Report on Ireland for the few who may be interested – Ireland: Country Report 2016
The US Treasury were obviously unimpressed with the response to Asst. Treasury Secretary Robert Stack’s recent visit to Brussels with Competition Commissioner Margrethe Vestager responding that “it is the same argument as we have heard before”.
The US clearly feels it is an argument worth making and now Treasury Secretary Jacob Lew has written a letter to Commission President Jean-Claude Juncker. It is largely a repetition of the arguments heard before but there are some interesting elements.
On the State Aid case against Ireland in relation to Apple, Lew is pretty clear:
Continue reading “US intervention on state-aid cases ratchets up”
The Apple story rumbles on meaning that almost anyone saying the X multiplied by .125 equals Y can make front-page news (provided Y is a big number of course). In very rough terms there are three possible outcomes to the investigation:
- No adverse finding is made,
- The 1991 advance pricing agreement, as revised in 2007, is found to be ‘wrong’ and different parameters are used to allocate profit to Apple’s operations in Ireland, or
- Some portion, or all, of Apple’s profits (outside of the Americas) are deemed to be taxable in Ireland.
Continue reading “Upsetting the applecart”
Oireachtas Joint Committee on Jobs, Enterprise and Innovation
– Report on Low Pay, Decent Work, and a Living Wage
Think Tank for Action on Social Change
– The Distribution of Wealth in Ireland
OECD Economics Department Working Paper
– Taxes, income and economic mobility in Ireland
Second event: International and regional competitiveness of the Irish economy
- Date and Venue: Wed 11th Nov 2015 7.00-8.30pm
- Venue: West Wing 5 (Main quad)
- Speakers: Eleanor Doyle and Justin Doran
The School of Economics, UCC is launching a series of public talks in 2015-16. The talks are aimed at the general public. They are non-technical (and non-political), informative, at times provocative and even entertaining. The talks showcase the range of research and expertise in the School of Economics, UCC, and engage the public on issues that are both topical and of widespread interest. In our first year, we highlight issues around the economics of sustainability; from the sustainability of Irish public finances and the economic recovery, to public policy issues in the areas of health insurance, sport, science and innovation, education and climate change.
The talks are free and open to all. More details here.
Suggested hashtag for these events: #ECONTALKSUCC
A recording of the first event held just before Budget 2016 with contributions from Seamus Coffey and Eoin O’Leary is available here.
The June 2015 Fiscal Assessment Report from IFAC is here.
A new analytical note from the Fiscal Council. Here.
The CSO have published the Q4 2014 update for these data. As pointed out 12 months ago there is a lot of noise in the figures.
Ireland’s gross external debt was estimated to be €1,721.6 billion at the end of 2014. On the other side of the ledger there are €2,623.8 billion of external assets in debt instruments. This means we have a net position of -€902.2bn, i.e. assets exceed liabilities. Of course, these figures are close to meaningless in any real sense as they are polluted by financial services sector.
Under the heading “IFSC” the CSO records total foreign assets of €2,757.5 billion and total foreign liabilities of €2,790.4 billion. The gross totals are immense but the net position is small by comparison. Here are the net international investment positions by sector excluding the impact of the IFSC.
Looking at the NIIP by sector is not the end of the story. We equally have to account for the MNC effect that will impact the figures for non-financial companies. For example in debt instruments alone there is €168 billion of external debt and €242 billion of external assets in debt associated with direct investment (outside the IFSC). This is further muddied by foreign direct investment into Ireland and investment abroad by Irish domiciled (and sometimes foreign-owned) companies. Part of the impact of this can be seen in the second panel which shows the NIIP by type of investment.
Ireland gross external debt (excluding the IFSC) is around €470 billion. By factoring for external assets in debt instruments the equivalent net external debt is (just) €55 billion. However, if we exclude the impact of direct investment in both directions (mainly MNCs but not exclusively foreign-owned MNCs) the situation is:
The gross external debt figure is just over €300 billion and has fallen around €100 billion over the past three years. As more of the external assets in debt instruments are associated with direct investment the net external debt figure here is €130 billion (higher than the €55 billion figure including direct investment). This has fallen by around €75 billion over the past three years.
If we look at the overall net international investment position we see the following (the chart begins in Q1 2012 as that is when the new BPM6 series start):
Note the subcategories are not the same. In the external debt chart we were able to remove assets and liabilities associated with direct investment. For the NIIP only a division by sectors is available. Thus we can show the NIIP excluding non-financial companies which in the main will reflect the activities of MNCs but not exclusively so. Outside of the IFSC and NFCs Ireland has a net external liability of €80 billion which is an improvement of €60 billion on the position at the start of 2012.
The CSO have published the Q4 2014 Quarterly National Accounts which provide us with the first full-year estimates for 2014.
Real GDP growth in 2014 is estimated to have been 4.8 per cent. Real GNP expanded by 5.2 per cent.
Nominal GDP grew by 6.1 per cent and now stands at €185 billion. Real GDP growth was 0.2 per cent in Q4 2014 compared to previous quarter. The Balance of Payments shows a current account surplus equivalent to 6.2 per cent of GDP (€11.5 billion) for 2014.
As per usual there is likely a lot happening under the surface of the headline figures with factors like contract manufacturing and re-domiciling PLCs impacting previous figures.
Prices rose 0.6 per cent in February but annual inflation remained negative at –0.4 per cent.
ECB President Mario Draghi wrote to MEP Matt Carthy on ”several aspects of the Irish adjustment programme”. Available here.
Released by the IMF:
There is lots of detail in both reports but it is likely most attention will focus on paragraphs 48-52 of the ex-post evaluation (though it’s all pretty much been said before).
Report from the CSO here with this press release. This is a valuable piece of information that fills an important gap.
Yanis Varoufakis will be confirmed as the new Greek finance minister later today. He “is no extremist.” [EDIT: The Guardian think “radical”.]
Here is a recent interview with him and ‘A modest proposal for resolving the eurozone crisis’ is here. Back in September a document on ‘What the Syriza government will do’ was published.
The latest playbook for the Stability and Growth Pact has been published by the European Commission. Here is a link to the document along with two related press releases.
We now have this little matrix:
The Commission’s methodology puts Ireland’s output gap at close to zero so we are in “Normal times". With public debt above 60 per cent of GDP this means that an improvement of greater than 0.5 per cent of GDP in the structural balance is required.
The numbers released with October’s budget would suggest that Ireland is on schedule to achieve this.
This shows an average annual improvement in the structural balance out to 2018 of just over 1.0 per cent of GDP. But these numbers come with a massive health warning. The projections in the outlook are set in terms of the following qualification:
As there are still uncertainties with regard to the interpretation and implementation of the fiscal rules, there is a technical assumption that voted expenditure ceilings remain fixed at 2015 levels. Similarly, taxation measures for the outer years are not embedded in the budgetary numbers at this stage. Priorities, which have been outlined in the Budget and Expenditure Report, will be addressed in subsequent Budgets when there is technical clarity around the quantum of fiscal space.
So no provision has been made for the promised tax cuts and expenditure increases that are being wheeled out on a regular basis.
The Commission document has lots of stuff on how they intend to account for the unknown impact of future reform measures on the unknowable structural balance. If there are going to be new caveats and qualifications every time a country is close to breaching the rules there is a risk that the SGP might become complicated!
From Ireland’s perspective it must be realised that while rules can be good they can never be perfect and there appears to be a risk that our fiscal policy becomes fixated on doing just enough to satisfy the SGP rules. There are frequent references to the amount of “fiscal space” that is available. This will be set relative to the Expenditure Benchmark which is likely to get increased attention when we become subject to it in 2016 upon leaving the EDP.
However, with a continuing deficit and a debt north of 100 per cent of GDP there is close to no fiscal space. In the run-up to the crisis Ireland’s budgets satisfied the rules that were in place at the time. We reached and then stayed at the MTO of a balanced budget but that was no protection against the budgetary collapse that occurred.
The updated rules might be better but there is no evidence that they are a panacea. If they were they wouldn’t need constant updating.
Article in The Irish Times by Minister for Finance Michael Noonan is here.
It is being reported on elsewhere:
All of these seem an exaggeration of what was actually in the article and the use of single quotation marks by the Irish Independent suggests their headline is something Michael Noonan actually said.
The piece from the Minister concludes:
I am confident that, over time, we will at a minimum fully recover the funds this Government invested in AIB, Bank of Ireland and Permanent TSB. If economic and trading conditions continue to improve over the next decade or so, the cash returned to the State combined with the value of any remaining shareholding may exceed the funds invested.
The confidence is about the recovery of the money put in by “this Government”. That was the €19 billion put in after the 2011 PCAR exercise of which around €2.3 billion has been returned from the sale of Irish Life and the BOI contingent capital notes. There is €17 billion to go. The article does not say that all the money pumped into the remaining banks will be returned though is something that “may” happen.
Part of this reported is likely the result of the byline used by The Irish Times which states that:
At the very least, the State should recover all of the money it has invested so far
It appears the sub-editor didn’t take in the actual text either.
And, of course, there is no discussion in either the original piece or the reports of it that money received in the future after “the next decade” will have a different real value to the money used from 2009-2011 to recapitalise the banks, not to mention interest and opportunity costs.
It is a positive that we are now considering some of the bank legacy issues as assets rather than liabilities. But the possibility of recouping money from selling stakes in the banks is not new and just as there was lots of exaggeration on the way down it now looks like we’ll get plenty of it on the way up.
The film will be aired tonight at 9pm. The film is good and well worth watching for those who missed its cinema run before Christmas.
It must though be considered in the light of being a drama and not a documentary. Unsurprisingly it differs somewhat from the stage version, Guaranteed!, with additional characters and less emphasis on a number of the alternatives that may have been considered.
Obviously some of the characters and most of the dialogue is fictional and we can’t be sure that the stance of individual characters is accurate, particularly in the Cowen-Lenihan exchanges. Overall it is a good dramatisation and will probably be more accurate than the debate which is due to following the airing.
I am looking forward to The Bailout later this year.
Some observations on some recent issues are below the fold:
- The NTMA’s purchase and cancellation of €500 million of FRNs from the Central Bank
- The passing in the US of The Tax Increase Prevention Act of 2014 which extends the “look-through” rule
- The recent falls of the price of motor fuel which mean the pre-tax price of petrol is below 40 cent/litre
Continue reading “To start 2015”
For the first three quarters of 2014 GDP is running 4.9 per cent ahead of the equivalent period in 2013. GNP is up 4.7 per cent on the same basis. Quarter on quarter growth has slowed through the year though much of this is likely the result of distorting effects from the MNC sector.
The “contract manufacturing” effect that influenced the quarterly figures at the start of the year seems to have continued into Q3. This seems to be supported by the Industrial Production data which includes this “contract manufacturing” effect and is highly volatile at the moment. After rising by over 20 per cent in the first half of the year the volume of industrial production in manufacturing industries fell by 5 per cent in Q3 so remains at the elevated levels. The figures show that the effect is arising in the pharmaceutical sector.
The Q3 balance of goods trade in the national accounts was around €3 billion higher than the balance shown by the Trade Statistics figures. The difference was around €2.5 billion in Q2.
In the first nine months of 2013 the national accounting adjustments for goods trade resulted in a difference of just –€76 million between the trades balances recorded in the national accounts and trade statistics. For the first nine months of 2014 the balance of goods in the national accounts is €7.9 billion greater than that shown in the trade statistics.
The current account of the balance of payments showed a massive surplus equivalent to 8.4 per cent of GDP in Q3. This has been driven by an improvement in the merchandise balance (with no corresponding outflow on the services side) which is likely the result of the “contract manufacturing” effect discussed above.
It is possible (i.e. this is a guess) that the “contract manufacturing” effect is arising in an Irish-domiciled company. If it was the Irish-resident branch of an MNC the profits would be recorded as an outflow in the BoP (and also for GNP) in the same quarter they are earned. If it is an Irish-domiciled (or headquartered) company the profits would not be recorded as an outflow until a cash dividend is paid (assuming those dividends are paid to non-resident shareholders). It is not appropriate to say that GNP excludes multinational sector profits.
[As an aside one might consider what impact, if any, these activities are having on Corporation Tax revenues.]
In November, consumer prices fell 0.3 per cent for the second month in a row (there was also a fall of 0.2 per cent in September). Annual inflation is just 0.1 per cent. Excluding energy products (-2 per cent) and mortgage interest (-12 per cent) inflation in the remaining 85 per cent of the index is around +1 per cent.
All charts from the CSO.
The European Commission have published their assessments of the draft budgets from the 16 eurozone countries covered by the assessment (programme countries Greece and Cyprus are not involved). Of the 16, five were judged as “compliant” by the Commission (shown in green below).
A huge amount of material is available here. For Ireland there is the:
The Commission have also published the Alert Mechanism Report as part of the Macroeconomic Imbalance Procedure. There is also the Statistical Annex from which Ireland’s scorecard is extracted here and shows four “imbalances” with house prices likely to add a fifth. The “auxiliary indicators” may also be worth a glance.
This is still early days for the European Semester but at the moment it feels a little like a blizzard covering everything. It seems to be designed on the maximin principle – by including everything they can’t be accused of missing anything. The problem is that the important points may get lost in the noise.