Tuesday, December 11, 2012

Carryover Effects

Here is an extract from Table 2.1 from the Medium Term Fiscal Statement published before Budget 2012 last year.

2012 Consolidation

The 2012 Budget a few weeks later outlined the €1.45 billion of current expenditure cuts and the €1 billion of taxation increases.  With pre-announced cuts in capital expenditure and the taxation carryover effects from 2011 the total added to €3.8 billion.  There also was €0.4 billion of revenue carryover effects for 2012 from the introduction of the USC in 2011 but these were excluded in the table.  The total could then be put at €4.2 billion as was done by both the EU and IMF.

The €1.45 billion of new current expenditure measures is confirmed in table 5 on page 13 of the Economic and Fiscal Outlook released with the Budget.

Here is the equivalent, though slightly modified, table for Budget 2013.

2013 Consolidation

The total sums to €3.5 billion but the “Tax” heading is replaced by “Revenue”.  This is because PRSI was moved from Expenditure to Revenue in the 2013 table. (PRSI is a departmental receipt (appropriation-in-aid) which reduces net expenditure).  Other revenue raising measures such as the third-level registration fee and charges for private patients in public hospitals remain under the “Expenditure” heading.

While in Budget 2012, €1.45 billion of current expenditure cuts were included in the table and subsequently introduced (though not necessarily implemented), for Budget 2013, €1.44 billion of current expenditure cuts were included in the table but €1.02 billion of current expenditure cuts were included in the budget.  This can be seen from Table 7  on page 14 of the Economic and Fiscal Outlook released with the budget. 

The €1.44 billion figure in the table for current expenditure cuts is reached with the inclusion of €0.42 billion of “carryover” effects from measures announced in previous budgets.  That is, the full-year effect of earlier measures won’t be felt until 2013 and these will serve to reduce expenditure in 2013.

However, for 2012 no expenditure carryover effects from the impact of measures announced in previous budgets were included.  The expenditure carryover effect was left out of the calculation of the total consolidation effort for Budget 2012, but included in the calculation of the total consolidation effort for Budget 2013.  Were there no expenditure carryovers coming into 2012 while there was €0.4 billion of them for 2013?

The inclusion of “Increased Dividends” as a consolidation measure also seems unusual and wasn’t included in this graph of Fiscal Consolidation 2012-2015 included as part of the IMF’s Fourth Review (page 13):

2012-2015 Fiscal Consolidation

There is no distinction made between the current spending measures for 2012 and 2013, and as seen the €3.5 billion total for 2013 includes €0.4 billion of expenditure carryovers rather than being entirely new measures.  This was what was included in relation to Budget 2013 in the IMF’s Seventh Review released in September:

On the basis of the aggregate budgetary projections set out in the Medium Term Fiscal Statement (MTFS) of November 2011, consolidation measures for 2013 will amount to at least €3.5 billion. The following measures are proposed for 2013 on the basis of the MTFS:

    • Revenue measures to raise at least €1.25 billion[2], including:
      • A broadening of personal income tax base.
      • A value-based property tax.
      • A restructuring of motor taxation.
      • A reduction in general tax expenditures.
      • An increase in excise duty and other indirect taxes.
    • Expenditure reductions necessary to achieve an upper limit on voted expenditure of €54 billion, which will involve consolidation measures of €2.25 billion on the basis of the MTFS, including:
      • Social expenditure reductions.
      • Reduction in the total pay and pensions bill.
      • Other programme expenditure, and reductions in capital expenditure.

[2] Inclusive of carryover from 2012.

Carryover effects are included for revenue but not expenditure.  It can also be seen than a €54 billion limit for voted expenditure in indicated.  This was not adhered to in the budget:

  • Gross voted current expenditure: €51,070 million
  • Gross voted capital expenditure: €3,435 million
  • Gross voted expenditure: €54,505 million

The excess over the limit is not very different from the level of carryover effects in the current expenditure consolidation effort included in the budget, but is more than likely because the current expenditure ceilings for 2013 laid out last year were increased.

One final point on carryovers relates to the tax carryovers in 2014.  Last week’s budget contained a lot of tax measures which will not come into full effect until 2014. Some of the main measures are:

  • Full introduction of Property Tax less NPPR: €180 million
  • Taxation of maternity benefit: €25 million
  • Removal of PRSI allowance: €26 million
  • Removal of PRSI block exemption: €24 million
  • Changes to maximum allowable pension fund: €250 million

These sum for more than €0.5 billion, though some reduced taxation measures will reduce the full carryover effect to close to €0.45 billion.  If €1.1 billion of tax consolidation is required in Budget 2014, then €0.65 billion of new measures will be required.

No comments:

Post a Comment

Carryover Effects @ Unsecured Loans Proudly Powered by Blogger