Monday, December 6, 2010

The Exchequer Account is not The Public Finances

There is a widespread assumption that The Exchequer Accounts represent the Government Accounts.  This is not true. 

The Exchequer Account only represents money which actually passes through the Exchequer Account in the Department of Finance.  There are a multitude of government receipts and expenditures that do not pass through the Exchequer Account.  These should form part of any analysis of our public finances.

Yet, time and again it is the Exchequer Accounts that get the only media exposure.  One reason for this is that they are released every month and are available in a readily digestible form.  A second reason is that many commentators and observers simply show no inclination to verify the statistics they use and go with the most accessible information.

Just one example should be enough to highlight the relative uselessness of depending on the Exchequer Accounts as a measure of the overall Public Finances.  Government revenue is examined below the fold. 

Most months we examine the tax figures from the Exchequer Accounts.  This is useful as a gauge of the patterns in tax revenues in the economy.  See posts here.  However, not one of these posts mentions PRSI, Motor Tax, or Commercial Rates. 

Do I just leave them out?  Of course not.  These taxes do not form part of The Exchequer Account so we do not get monthly statistics on them.  These are significant sources of revenue for the government.

The Exchequer Accounts reveal a tax revenue in 2009 around €32.5 billion.  This figure is broadcast far and wide as the government’s tax take.  This is not true.  It might come as a surprise to many to hear that the tax take in 2009 was actually €44.6 billion.  This is a substantial difference.  Here are the 2009 figures from the Central Statistics Office.

Total Tax Revenue

The Exchequer Accounts include some measures of non-tax revenue.  Current non-tax revenues include surplus incomes,  royalties, interest, dividends from semi-state companies and other receipts.  Capital revenues include some EU receipts, loan repayments, and sale of state assets.  These came to €1,728 million.  Added to tax revenue above this gives a total of €46,350 million.

And even then this is not a measure of total government revenue.  There are a huge range of charges, fees and fines levied by government departments that do not flow through the Exchequer Account yet clearly form part of government revenue. 

In the parlance of our public finances, these are called “Appropriations in aid”.  All of the non-exchequer taxes listed above are defined as appropriations in aid. In fact, some of them don’t even appear in the overall central government account.  For example, Motor Tax and Rates are paid to local authorities.

At this point a definition is required of “appropriations-in-aid”.   We can get one from page three of The White Paper.

Appropriations-in-aid: These are receipts which may be retained by a Department or Office to offset expenditure instead of being paid into the Exchequer Account of the Central Fund.

The expenditure figures quoted in the Exchequer Account are net of these appropriations-in-aid.  These monies aren’t counted by the Exchequer because they stay within the relevant department.  If we want to get a measure of how much money the government is collecting we should add these receipts and if we want total expenditure we should look at the gross expenditure figure.

These appropriations-in-aid form a substantial part of central government revenue but because they still within the department that collects them they do not form part of the Exchequer revenue.  I repeat – the Exchequer Accounts do not represent the public finances.

In 2009 these “appropriations in aid” totalled €15.9 billion.  See Table 1 on page 16 here.  This is €15.9 billion of government revenue which is ignored in the public debate because it does not form part of the Exchequer Account.  In 2000, this figure was €2.2 billion and in 2005 this was €9.7 billion.

It is rather difficult to determine how this figure is broken down but a good place to start is the €9.7 billion the Department of Social Welfare received from the Social Insurance Fund for social welfare payments.

Here are some of the main appropriations in aid collected by departments and government agencies in 2009 (taken from here).

Approppriations in Aid

Although some come from external source (EU) most of this comes from our pockets.  If we avoid double counting PRSI contributions to the Social Insurance Fund and the Broadcasting License Fee we find that government revenue in 2009 was closer to €53 billion.  This is the €44.6 billion in tax revenue, the €1.7 billion in non-tax revenue, and roughly €6.5 billion of revenues excluded from these categories that are classified as “appropriations-in-aid”.

And even then this is still an underestimate of government revenue.  While it does include Motor Tax and Commercial Rates collected by local authorities, it still omits commercial water charges, domestic service charges, parking charges and fines, and a whole range of other charges levied by local authorities.  In 2009, local authorities collected €3.6 billion in addition to the receipts already mentioned.

With all this included we find that total government revenue in Ireland in 2009 was approximately €56.5 billion euro.  This is a long way from the €32.5 billion figure from the Exchequer Accounts that gets far more coverage than it deserves.

Here is what it looks like.

Government Revenue 2009

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