Categories
Fiscal Policy

Comptroller and Auditor General Report for 2010

The annual report of the Comptroller and Auditor General contains lots of useful information. However, one criticism I would level at the report is its use of an accounting framework that differs from the General Government Budget that we report to Brussels.

The report states that “Overall State expenditure in 2010 was €53.8 billion, a reduction of 9.5% on the 2009 level” figures that are being widely reported in the news today. The report also lists “Total Receipts” at €35.6 billion up from €34.7 billion the year before.

However, if one looks at the more comprehensive accounts that we provide to Brussels—and which are used as the basis for reporting and compliance with our EU-IMF programme—one finds (page 49) that total expenditure by the Irish government last year was €103.2 billion while total revenues were €53.2 billion.

The €103.2 billion expenditure figure includes €30.8 billion for promissory notes, and one can understand that there are various possible accounting treatments for these notes. However, that still leaves non-promissory-note spending at €72.4 billion, almost twenty billion higher than reported by the C&AG. So despite the use of “overall” and “total”, it’s pretty clear that these are not overall totals at all.

Some of these differences are accounted for by the exclusion of capital spending and on the tax side there’s differing treatment of PRSI contributions. I could go on listing other differences but, frankly, who cares? The GGB figures provided to Brussels are the most comprehensive indicators of our fiscal position and they are being closely watched by the EU and IMF.

As I’ve written about before, these kinds of figures also mislead the public about key magnitudes, thus undermining public debate about fiscal options. For example, you will hear various expenditure items compared against a total tax revenue figure of €31.7 billion—those who’ve read the C&AG report will think total revenue was €35.6 billion. This usually ends up distorting the actual fraction of revenues devoted to these expenditures.

Categories
Fiscal Policy

Fun with Instant Zero Deficits!

I know some of our blog commenters are big fans of the idea of ending the EU-IMF deal and immediately running a zero deficit. I spoke with Kathy Sheridan from the Irish Times a while back about how this would be chaotic.

It’s interesting then to see US politicians apparently eager to try out this experiment on their own economy, pretty much for the hell of it. Here‘s an interesting analysis of the decisions that could be facing the US Treasury on August 2. A corresponding analysis for Ireland would be really interesting.

Categories
Fiscal Policy

Government Revenues and Spending

One of the problems that plaugues discussion of the Irish public finances is there is a fairly widespread confusion over how much the government takes in as revenues and how much it spends.

Many people know that the figure for “tax revenues” has been about €30 billion in recent years, via press coverage of the monthly exchequer returns. (See here for the 2010 end of year exchequer returns showing €31.7 billion in tax revenue.) Many people also know that we have run deficits of close to €20 billion in recent years.

Together, these two facts have lead to the wide repetition of statements along the lines of “we are taking in €30 billion and spending €50 billion.” Often, a particular item of government expenditure, such as public sector pay or social welfare is then compared to the revenue take of €30 billion to illustrate the huge fraction of government revenues that it takes up.

It turns out however that a more accurate description of the Irish public finances has been the government has been taking in about €50 billion and spending about €70 billion. This pattern is hard to assess from looking at the Exchequer statements because, for example, they do not count the €11.4 billion in “social contributions” such as PRSI as taxes. Indeed, the whole definition of tax revenues is a bit arbitrary. I believe the USC is being counted as tax revenues, while various levies that it replaces were not.

The most useful description of the state of the Irish public finances is the materials provided to the European Commission, for example in Friday’s Stability Programme Update. Go to the second last page and you’ll see a useful breakdown of exactly how the General Government Deficit of €49.9 billon was determined. Take away the promissory note worth €30.8 billion and this deficit would have been €19.1 billion, determined by spending of €72.4 billion and revenues of €53.3 billion. (The last page contains a description of the relationship between the Exchequer Balance and the General Government Balance.)

Unfortunately, this simple and clear presentation of the public finances is not emphasised in the materials regularly released by the Department of Finance. Perhaps one of the reforms that the two new minsters in charge of spending and taxation could agree to would be to release regular clear presentations of the tax and spending figures underlying the general government deficit.

Categories
Banking Crisis Fiscal Policy

Eurostat: Irish Deficit 36% of GDP in 2010:Q1

I know that the NTMA have already admitted as much but just in case there were any remaining doubts that Eurostat are counting the promissory notes towards this year’s budget deficit, the picture below is a screencap from Eurostat’s publicly available database. Yes, our deficit in the the first quarter of 2010 was 36.51% of GDP. I believe the figure for the year will be about 20%. (Yes it’s my first time using a picture! Perhaps now you can see why.)

Categories
Banking Crisis Fiscal Policy

Irish Fiscal Policy: Not Out of the Woods Yet

Gillian Tett’s Financial Times column today praising the Irish government’s approach to fiscal adjustment relative to that of Greece, Spain or Portugal is welcome. Without doubt, the government has taken a brave approach to fiscal adjustment and the public reaction to it has been one of remarkable tolerance. However, I think we need to be careful about overdosing on external and self-praise and concluding that we’re somehow out of the woods on the fiscal front.