The Irish Times reports
Tax revenues collected by the Government up to the end of July are €575 million lower than the Department of Finance expected a little over three months ago, with the shortfall in receipts trebling over the last month.
DoF report here.
This looks like bad news but I have to admit that short-term revenue forecasting spreadsheets are not one of my hobbies. So, anyone with better expertise than me care to weigh in? What’s our 2009 budget deficit looking like after this?
The US debate on how to tackle its high public debt has expanded to take in some non-orthodox solutions:
U.S. Government Stages Fake Coup To Wipe Out National Debt
A remarkable recommendation from An Bord Snip Nua is to suspend payments into the National Pension Reserve Fund (NPRF). In today’s Irish Times, Fintan O’Toole comes out in support of this proposal (see his article here). The relevant text from the report is:
D.2 Suspend payments into the National Pension Reserve Fund
Under the National Pensions Reserve Fund Act 2000, one per cent of GNP is paid into the NPRF each year. The Group considers that continuation of this annual payment is difficult to justify at this time, given the rate of growth of the public sector borrowing requirement. These payments were affordable when the budget was generally in balance but the Group considers they should be suspended as the State is in effect borrowing to finance the purchase of financial instruments.Transfers to the NPRF amount to approximately €1.6bn a year. Suspending this €1.6bn transfer would have no impact on the General Government Balance, but would reduce the annual Exchequer Borrowing Requirement.
(page 182 of second part of report)
It is odd that the NPRF falls within the remit of a report on public expenditure, since payments into the Fund do not constitute public spending as it is normally understood. Rather, the Fund is a vehicle to enable partial pre-funding of the projected sizeable increase in future public spending that is connected to the ageing of the population. The logic of pre-funding follows from ‘tax smoothing’ principles – it is better to have a higher tax burden now in order to make payments into the Fund rather than to experience a discrete jump in the tax burden in the future. The annual payment into the Fund is also an important commitment device, especially during periods of scarce fiscal resources. In particular, the Fund protects the interests of those who will be paying taxes in the post-2020 period versus those who have a much shorter horizon.
There is certainly plenty of room to discuss the appropriate investment strategy for the Fund, especially when the government is running a deficit and there is a sizeable risk premium embedded in the yield on Irish sovereign debt. Moreover, the ad hoc revision of the Fund’s investment strategy to enable its investments in the main Irish banks provides a further reason to re-think the strategy for the Fund.
One dimension of this review could include the Fund’s strategy vis-a-vis Irish government debt. Although the founding legislation for the Fund prohibited the purchase of Irish government debt, this prohibition could be reviewed. Just as the US Social Security Fund holds only US treasury bonds and retirement funds in other countries have a heavy concentration in domestic government debt, it may make sense for the Fund to have the option to purchase Irish government debt under certain conditions. This is also in line with the trend towards localisation in investment decisions, as described by Gillian Tett in the FT yesterday (her article is here).
Another group has taken the legal route to try to prevent a government decision to reduce expenditure, this time the Minister of Health’s decision to reduce payments to pharmacists for dispensing drugs to patients. Eilish O’Regan, the Irish Independent’s health correspondent, has two good articles outlining both the background to the dispute and giving some details on the money at stake to individual pharmacies in today’s issue of that paper.
The case (see Irish Times report here), which is being taken by the Haire group of pharmacies, claims that the cuts will push it into a loss-making situation meaning it cannot repay its bank loans and will thus become insolvent. The pharmacies want an injunction restraining the Minister applying the regulations. Among various claims, they allege failure to provide 30 days notice of the change in the payment regime was unlawful and breached their constitutional rights. The case is being prosecuted by Gerard Hogan, SC who is also representing the teachers taking a case against the government for closing their early retirement scheme. The application for the injunction will be heard on Monday next.
If the main argument made by the pharmacies is that the Minister did not give the required 30-day notice, this would appear to simply delay rather than prevent the implementation of the cuts, which seems a lot of money simply for a few months’ reprieve. If the Minister lost on that basis, I presume she would simply start the process again giving proper notice. One assumes that the pharmacies want to prevent the cuts indefinitely, but the basis for this argument is not clear from the reports.
In addition to the Department-by-Department blow-by-blow recommendations, An Bord Snip Nua has offered general comments and recommendations in Chapter 2 of its Volume 1. Among other things, it speaks about:
– Outsourcing and economies through shared ICT.
– Rationalization of Departmental structures and agencies including for the delivery of services at local level;
– Improvements in procedures for public procurement and property management.
– Value for money and performance appraisals.
I would welcome specific comments on these structural and strategic aspects in this thread.