Public Finances 2008 Thread: Revenue and Spending

[kerrynorth]

Rather than have a thread every month with the release of the monthly exchequer figures as we had last year I thought one thread for the whole year would make for ease of reference. The state of the public finances will I suspect be a major news story this year as the changed economic circumstances are felt on both tax revenue and government spending programmes. We have seen how badly they got their figures wrong last year.

The Dept. of Finance have published the monthly projection figures on their site www.finance.gov.ie however, I cannot copy the link so I will post just some key aspects.

Total Tax Revenue is projected at 48.91billion + 3.5% on last years end total, but tellingly less than they were expecting for 2007 in the budget!!

Individual tax heads are as follows:

Customs 0.3billion +12.8%;
Excise 5.990billion +2.6%;
Capital Gains Tax 3.21billion +3.4%;
Capital Acquisitions Tax 0.405billion +3.3%;
Stamp Duties 2.855billion -10.4%;
Income Tax 13.9billion +2.4%;
Corporation 6.7billion +4.8%;
VAT 15.55billion +7.3%.

The top two tax heads, Income Tax and VAT, both look somewhat peculiar and at variance with what we are being told about the economy.

First of all the 7.3% VAT increase looks totally unrealistic. Last years figures were boosted by SSIA spending in the first half of 07 with the May retail sales up 10% alone! However, the figures for October and November show that retail sales have stalled and in fact went into decline and what we are aware of for December is not promising. The VAT for these months will be paid early in 08 and we are aware that consumer confidence is at a low so quite how VAT revenue is going to 7.3% higher in 08 beats me.

With regard to Income Tax just a 2.4% increase is allowed for. This is despite us being told by the government that they are projecting employment to increase by 22,000, or 1.1%, plus there are two 2.5% increases due under the partnership agreement meaning a gross increase in wages of circa 4% for a large chunk of the economy plus there was actually a slight Income Tax increase in the budget as the Standard Rate band was increased by a bit less than the increase in incomes. This data tells me that despite the projections at budget time that the Dept of Finance expect there to be a combination of an overall fall in employment and/or a sharp fall in wage growth in the private sector.

The government based their projections on assumptions such as 3% growth, 22,000 increase in employment and early 60k's (61-63k) housing completions. My own projection is no more than 1% growth (with an increasing risk of much less), 25,000 net job losses and just 45k housing completions.

My projection for the public finances are that tax revenue will come in at 2billion+ short of target and that the projected GGB of 0.9% of GDP will come in at closer to double that at circa 1.8% providing that the government do not engage in a round of mid-year spending cuts/tax increases, which I would not rule out.

On the spending side this is totally in the gift of the government and there is really no point making any projections other than to monitor how it is progressing month to month.

The January exchequer figures should be out Monday.

[kerrynorth]

The unemployment figures today throw government spending on unemployment off course for the year. The government budgeted on the basis of an average 170k live register for 2008. The January figure is 181.5. As unemployment deteriorates an annual average figure of circa 190k looks more likely. Each 1000 the average is out probably costs the exchequer circa E15million in direct unemployment payments and more again in other payments and benefits (medical cards, back to school allowances, rent and mortgage supplements etc etc). If they are 20000 out on average that is circa E300-350million that the budget is out on the spending side. There will also be a hit directly to Income Tax and indirectly to the other tax heads.

[kerrynorth]

According to the SBP the January exchequer returns being released on Monday will show tax revenue running behind projections. It says that Capital taxes in particular are weak. It also mentions that Income tax is expected to come under pressure as the employment situation weakens.

Property slowdown puts pressure on budget targets

03 February 2008
By Cliff Taylor and Pat Leahy
January exchequer figures to be published tomorrow will show that the property slowdown continues to have a significant impact on tax revenue.

Stamp duty and capital taxes are understood to be running behind 2007 levels, highlighting the challenge to finance minister Brian Cowen in meeting his budget targets.

The main areas of taxation - income tax, corporation tax and Vat - are understood to be broadly on target, but income tax may come under pressure in the months ahead if the big increase in unemployment reported in January is repeated in subsequent months.

In an interview with The Sunday Business Post, Cowen conceded that further job losses were likely this year.

‘‘There will be some job losses. That’s inevitable, and it looks like we’re facing a slight rise in the unemployment rate this year,” he said. Grove Turkeys in Smithboro, Co Monaghan last week said it would lay off 130 staff; the Merriott radiator plant is laying off 90 people and Allergan in Arklow is laying off 360 staff.

Cowen also conceded that negotiations on a new national wage agreement, due to commence in the coming weeks, were likely to be extremely difficult, following the benchmarking disappointment for the public sector unions and the top-level pay rises before Christmas.

‘‘Labour costs are an important part of our overall productivity, and what we really need to do is to look at improved overall productivity. Perhaps it will be more difficult to do a deal. But we have to see if we can do it for everyone’s benefit,” he said.

He rejected accusations that the government had inappropriately increased public spending at a time when the economy was expanding rapidly.

‘‘I don’t accept we overheated the economy,” he said.

‘‘We dealt with conditions as they were . . .The opportunity arose to do things and they were done. But look at the evidence, look at how our position compares to other countries.

‘‘We are still in the unique position that we are able to fund many capital programmes from our current resources. It can’t seriously be suggested that the public finances were put at risk.”

[ajax1000]

Oh Kerrynorth. How you hope for this! You are a cheerleader for a return to the eighties with misery and depression.

[kerrynorth]

Oh Kerrynorth. How you hope for this! You are a cheerleader for a return to the eighties with misery and depression.

No. Just reporting the facts and giving an honest analysis. That is a hell of a lot more than you will get from any arm of government or the vested banking and commercial interests who want people to bury themselves further into debt in order to generate their annual bonuses.

Liquidators and receivers are licking their lips at the way things are going at the moment which means only one thing.

[kerrynorth]

January tax revenue is 36million ahead of profile at 4.61 billion. The highlights are Income Tax 54million ahead and VAT 65million behind profile. All the other tax heads are only marginally either ahead or behind target.

Spending was up 1.34billion to just short of 5billion. Departmental spending came in 24million below profile.

The Exchequer Surplus is down over 1.06billion to just 630million.

[NeilW]

We have seen how badly they got their figures wrong last year.

How wrong were they in the end?

[freedomlover]

In other words, the figures are good, rather better than projected in December's budget, much better than media speculation last week indicated, and in no way supportive of the view that we've gone into recession. You can tell how good they are by the fact that this thread died the death as soon they were published. Still, its only January's figures and I'm sure there'll be opportunities later in the year for people to tell us how doomed we are.

[kerrynorth]

We have seen how badly they got their figures wrong last year.

How wrong were they in the end?

Revenue came circa 1.6billion less than expected.

[NeilW]

We have seen how badly they got their figures wrong last year.

How wrong were they in the end?

Revenue came circa 1.6billion less than expected.

What was that as a %age shortfall? 3.5% or so?