Category: Fiscal Policy

EC: Summer 2013 Programme Review

The Staff Report on the Commission’s latest review of Ireland’s EU/IMF programme is now available.  It does not contain much that is new.  There is this on page 20.

Ireland’s fiscal stance has not been overtly pro-cyclical since the beginning of the crisis. Using conventional metrics, discretionary fiscal policy has been clearly leaning against the wind in 2008 and 2009, and did not move openly or blatantly into the wind in 2010 and after, in spite of the significant budgetary adjustment efforts put in place by the Irish government (Graph 2.1) (14). Fiscal policy remained, and is expected to remain broadly in line with the stabilisation function of discretionary fiscal policy, or at least not to run counter that function. In the early years (2008-2009) when fiscal policy was incontrovertibly counter-cyclical, the fiscal policy strategy mainly consisted of correcting previous policy commitments built on optimistic growth projections accompanied by the fact that in a deflationary environment, nominal expenditure freezes implied increases in real terms. Since 2011, the improvement of the structural deficit has taken place in an environment of slightly improving economic conditions.

This is Graph 2.1. Click here to enlarge.

Maybe footnote 14 is important:

(14) The structural changes of the economy during the economic crisis are beyond normal business cycle fluctuations. Therefore, potential growth and structural government balance estimates need to be treated with caution.

Corporate Tax Collection

Representatives of the UK’s Revenue and Customs appeared yesterday before the Public Accounts Committee of the Houses of Parliament.  The exchanges were interesting though the evidence from the HMRC officials was sometimes confusing.  Following on from previous work done by the committee much of the focus was on corporation tax with issues relating to tax residency, tax compliance, the tax gap and permanent establishment among those referred to.

The questioning from the committee chair, Margaret Hodge, was forthright but at times slipped into grandstanding, primarily a suggestion that the Revenue show take “a few show cases”.  Ms Hodge also wanted the Revenue to estimate how much the tax gap would be if it was calculated “between the money that you collect and the money if everyone paid their fair share”.  Of course, “fair share” is an alien concept to tax collectors; their job is to collect what the tax code prescribes. Unless something illegal is being undertaken the answer to such a question in relation to MNCs will be close to zero.   If the UK wishes to collect more corporation tax Parliament changing the tax laws would be more effective than the Revenue undertaking some show cases.

An investigation into Google’s activities was alluded to through an exploration of documents provided by a former employee but it is not clear that it will lead to a change in the judgement that Google does not have a permanent establishment in the UK.

I don’t know if the Houses of Parliament make transcripts of the committee sessions available.  The transcript of a recent appearance by our Revenue Commissioners at a sub-committee of the Oireachtas Finance Committee is available here.

A Bloomberg feature on some elements of the Irish corporation tax regime was also published yesterday.

UPDATE: A transcript of yesterday’s Commons PAC hearing is here (H/T Gavin).

Private debt, public debt, and crises

Òscar Jordà, Moritz Schularick, Alan Taylor have a new piece on the issue, available here.

Google’s Tax Planning

The Dutch Sandwich and Double Irish figure prominently in this FT article about Google’s tax returns for 2012.
It seems that Google Netherlands Holdings, which represents the Dutch part of the sandwich, received €8.6bn in royalties from Google Ireland Ltd last year.

House prices: bubbles versus booms

The end of one quarter and the start of another sees the usual slew of economic reports and the start of Q4 is no exception. Today sees the launch of the Q3 Daft.ie Report. In line with other reports in the last week or so, and indeed with the last few Daft.ie Reports, there is evidence of strong price rises in certain Dublin segments. What is new this quarter is the clarity of the divide between Dublin and elsewhere: all six Dublin regions analysed show year-on-year gains in asking prices (from 1.4% in North County Dublin to 12.7% in South County Dublin), while every other region analysed (29 in total) continues to show year-on-year falls (from 3.1% in Galway city to 19.5% in Laois).

The substantial increases in South Dublin over the last 12 months have led to talk of “yet another bubble” emerging, with internet forums awash with sentiment such as “Not again!” and “Will we never learn?”. To me, this is largely misplaced, mistaking a house price boom for a house price bubble. Let me explain.

Firstly, I should state that, unlike “recession” which is taken to mean two consecutive quarters of negative growth, there is no agreement among economists on what exactly constitutes a bubble, in house prices or in other assets, but the general rule is that prices have to detach from “fundamentals”. For example, the Congressional Budget Office defines an asset bubble as an economic development where the price of an asset class “rises to a level that appears to be unsustainable and well above the assets’ value as determined by economic fundamentals”. Charles Kindleberger wrote the book on bubbles and his take on it is that almost always credit is at the heart of bubbles: it’s hard for prices to detach from fundamentals if people only have their current income to squander. If you give them access to their future income also, through credit, that’s when prices can really detach.

Continue reading “House prices: bubbles versus booms”