Yesterday’s release of the end-of-year Exchequer Statement provides the opportunity to update the quick look we gave to the mid-year figures. The conclusions drawn in July are largely unchanged. First the overall Exchequer Balance.
At €24,917 million in 2011, this was the largest Exchequer deficit ever recorded. The Press Statement released with the figures says that it’s not too bad though.
The Exchequer deficit in 2011 was €24.9 billion compared to a deficit of €18.7 billion in 2010. The €6.2 billion increase in the deficit is due to higher non-voted capital expenditure resulting primarily from banking related payments. The majority of these payments are once-off payments relating to the recapitalisation of the banks and an exchequer deficit of €18.9 billion is forecast for 2012.
Excluding banking related payments the Exchequer deficit fell by €2¾ billion year-on-year.
Ah, “once-off” banking payments. Next year’s “once-off” banking payments will be €1.3 billion to IL&P and possibly some further payments to the credit union sector. So what €8.95 billion of “banking related payments” do we have to remove to turn a €6.2 billion deterioration in the Exchequer deficit into a €2.75 billion improvement?
UPDATE: I had guessed what was included in this calculation but the Department of Finance have posted a useful presentation providing the details. This is from slide 4.
The issue is the inclusion of the Promissory Notes. If we exclude this €3.1 billion payment along with all the other banking amounts then the Exchequer Deficit is lower this year.
We didn’t make a payment on the Promissory Notes last year but we will make this €3.1 billion payment each year to 2023 and lower payments right up to 2031. From next year there will be accrued interest added to the Promissory Notes that will increase the General Government Debt. You cannot exclude something that is going to happen for the next two decades as a basis for saying the deficit is getting smaller.
We can strip out a lot of the banking complications by looking at the balance of the Exchequer current account. This does include the €1.2 billion of income earned from providing the guarantee to the covered banks which is counted as current revenue.
The final outturn and annual pattern of current account deficit has been largely unchanged for each of the last three years. Between 2007 and 2009 there was a €20 billion deterioration in the current balance. In the two years since the achievement has been to keep the drop to €20 billion. There has been no improvement in the current account deficit.
Looking the Exchequer interest payments gives some insight into how this has been achieved.
For a country that has to borrow to fund the deficits shown above it is pretty amazing that the interest expense in 2011 was lower than in 2010. The explanation is that some of the interest costs were covered from an account other than the Exchequer Account. Again, the press statement is helpful.
Taking into account the funds used from the Capital Services Redemption Account (CSRA) as well as Exchequer payments, total debt service expenditure was up €1.1 billion year-on-year in 2011, at close to €5.4 billion. This reflects the burden of servicing a higher stock of debt.
For 2011, the Budget target was a General Government Deficit of 9.4% of GDP. The actual deficit will be around 10.0% of GDP. This slippage (largely the result of lower than expected tax revenue) was not a significant issue as the deficit limit set by the European Commission was 10.6% of GDP.
For 2012, the Budget target is a deficit of 8.6% of GDP. The deficit limit set by the EC is also 8.6% of GDP. If there is any slippage or lower than expected nominal growth we will not meet the deficit limit.