Author: Seamus Coffey

Writing in today’s Irish Times Vincent Browne says:

On Monday last, Eurostat published its latest report on poverty and social exclusion. It showed that for the EU as a whole the at-risk-of-poverty rate was 24 per cent, but for Ireland, it was almost 30 per cent. Only three other countries in the EU 27 had a higher at-risk-of-poverty rate: Latvia, Lithuania and Romania.

This is the 2011 Eurostat press release on social exclusion and at-risk-of-poverty rates.  The first thing to note is that is contains no figure on the at risk-of-poverty rate in Ireland for any year.  It does contain 2010 data that gives the sum of the following three measures for each country.

• Persons at-risk-of-poverty after social transfers
• Persons severely materially deprived
• Persons aged 0-59 living in households with very low work intensity

From the report there is no way of knowing how much of the 29.9% figure for Ireland (the joint fourth highest in the EU) is attributable to each category.

We have 2010 data on the at-risk-of-poverty rate.  The table from page 77 of the CSO’s 2010 EU-SILC publication released in March of this year is below the fold.

The three average figures provided for the at-risk-of-poverty rates in 2010 are:

• EU-27: 16.4%
• EU-15: 16.2%
• Eurozone: 16.1%

The 2010 figure for Ireland is 16.1%.  This is lower than the EU27 and EU15 averages and equal to the Eurozone average.  Bulgaria, Greece, Spain, Italy, Cyprus, Latvia, Lithuania, Poland, Portugal, Romania and the United Kingdom all had a higher at-risk-of-poverty rates than Ireland.

In the same table it can also be seen that Ireland has the second-highest at-risk-of-poverty rate excluding all social transfers, well above all the EU averages.  The distribution of cash benefits improves Ireland’s ranking from 26th in the EU27 to 16th, with an at-risk-of-poverty rate below the EU27 average.

In 2010, the at risk-of-poverty rate in Ireland for people aged under 60 in households with very low work intensity was 38.8%.  The EU27 average was 56.9%.  Ireland’s at-risk-of-poverty rate for households with very low work intensity was the second lowest in the EU. Only the Netherlands at 36.7% had a lower rate in this category.  A table of these figures taken from Eurostat is also below the fold.

In 2010, the percentage of people aged under 60 living in households with very low work intensity was 22.8%.  the EU27 average was 10.0%.  Ireland’s rate on this measure was the highest in the EU, by a distance.  The next highest rate was in the UK at 13.1%.  These are also provided in the second table below.

Conclusion for 2010: Ireland has lots of people who live in households with very low work intensity.  Just over a third of these are at-risk-of-poverty, compared to nearly 60% in the EU.  Ireland’s at risk-of-poverty rate is below the EU27 average.

The 30% figure cited in today’s Irish Times is because Ireland has an very high number of households with low work intensity, not because Ireland has a high at-risk-of-poverty rate.  Ireland’s cash benefits system does more for people living in households with low work intensity than almost any EU country.  It is a pity the readers of the paper won’t know this.

The Exchequer Statement for November has been published by the Department of Finance.  The shortfall in taxation flagged in the White Paper is clearly visible in the Analysis of Tax Receipts and is further explained in the Information Note accompanying the return.  Income Tax was €300 million (12.1%) below the monthly target.  There is also an Analysis of Net Voted Expenditure.

The new Analytical Statement is an addition to the monthly information presented by the Department of Finance.

The Q3 2012 QNHS has been released by the CSO.

This is the first release to incorporate the results of Census 2011.  The population estimate used by the CSO at the time of the census was almost 100,000 lower than the figure provided by the census.  An information notice gives the impact this revised population estimate has on the QNHS results.

The statement from last night’s Eurogroup meeting is here.

The specific measures to be introduced now will attract some attention.

• A lowering by 100bps in the interest rates on the Greek Loan Facility.
• A lowering by 10bps in the guarantee paid by Greece for EFSF loans.
• Term extension and interest deferral on EFSF loans
• Recycling of SMP profits back to Greece.

Some assistance will also be provided to allow Greece to undertake some form of debt buyback.  More significant is the provision that:

Euro area Member States will consider further measures and assistance,…,in order to ensure that by the end of the IMF programme in 2016, Greece can reach a debt-to-GDP ratio in that year of 175% and in 2020 of 124% of GDP, and in 2022 a debt-to-GDP ratio substantially lower than 110%

The measures announced last night are, on their own, unlikely to push Greek debt down to 124% of GDP by 2020.  Even if the primary surplus set out as being a condition for the above commitment is achieved, the necessary nominal growth rates to reduce the debt ratio to the revised targets may not. 

Further measures will be necessary to ensure Greek debt sustainability, but the announced intention to do so means the odds on a Grexit will be lower after last night.

One discussion point from the Financial Regulator’s mortgage arrears statistics is the performance of loans in the state-owned banks (AIB/EBS, PTSB & INBS) which between them have about 50% of the owner-occupier residential mortgage market in Ireland.

There is a small additional group of mortgages controlled by the state and these are local authority mortgages which are provided to eligible people who may not be able to get a mortgage from a bank.  These mortgages are are not included in the FR’s arrears statistics.

At the end of 2011 there was €1,425 million outstanding on these loans which is around 1.25% of the total (see page 64 of the 2011 HFA Annual Report).   A breakdown of the amount by local authority at the end of 2010 is in Appendix Six on page 39 of this audit report.

There are around 22,550 local authority mortgages giving an average balance of around €60,000.  The interest rate charged on these loans is currently 2.75%.

At the end of Q2 2012, 6,280 (28%) of these loans were in arrears of 90 days or more.  This compares to 11% for mortgages in financial institutions.  The pattern of local authority mortgage arrears in 2010 and 2011 can be seen here.

The aggregate balance on the loans in arrears was €204 million in Q3 2011. In 2011, the amount collected at the end of the year as a percentage of the amount due was 71% (see slide 13) but this includes accrued arrears at the start of the year. Excluding accrued arrears, there was a shortfall of around €9.3 million on the repayments of around €100 million due in 2011.

At the end of 2011 the total arrears owing on local authority mortgages was around €33 million.  The shortfall has to be made up by the local authorities to meet their repayment commitments to the Housing Finance Agency who provide the finance for the loans.  Appendix Five on page 37 shows the collection rates of housing loan repayments by local authority in 2010.

The Department of the Environment has produced A Guide of Local Authorities – Dealing With Mortgage Arrears which outlines the steps that should be taken when a mortgage falls into arrears.  Page 15 has a definition of an “unsustainable mortgage”.

A loan may be deemed unsustainable if the full interest is not serviceable on a long term basis.  Short term arrangements may allow for partial payments on loans, even where the full interest is not being met, for a period of up to 36 months cumulatively. If the  balance on the loan is increasing rather than remaining static or decreasing, after a period of incremental short term extensions exceeding 36 months, then the loan appears to be underperforming and might be considered unsustainable.

This is put in terms of the balance increasing which is a better measure of mortgage distress than account arrears.