Liabilities with the ECB and Irish Central Bank – Is the hysteria fully deserved?

The liabilities of Irish financial institutions with the Eurosystem of central banks have been getting a great deal of coverage recently and there are lots of stories like this:

The latest data shows that Anglo Irish Bank and other lenders had borrowed €51bn (£43bn) from the Irish central bank by the end of December, under an obscure programme listed in the balance sheet as “other assets”.

This comes on top of €132bn in loans from the ECB itself, the figure normally tracked by analysts and itself 24pc of all ECB lending.

“This is a horror story: it shows the cataclysmic condition of the Irish banking system,” said Tim Congdon from International Monetary Research. “The banks have borrowed €183bn in total, or 110pc of Irish GDP. They have burned through all their capital and a lot of their deposits as well. This is going to end up on the national debt”.

People would want to be careful of the figures that are being thrown around.  The numbers are enormous but that does not mean that they have to be inaccurate.  We don't have a breakdown of the preliminary end-January figures reported on today which showed liabilities to the ECB declining to €126 billion, but we do have such a breakdown for the end-December figures.

Based on the end-December figures from the Central Bank, Irish banks had liabilities of €132 billion with the ECB.  Unlike, as has been suggested above, this is not necessarily a liability which could all fall on the State.  There are a couple of issues we must note.

First, we must make the distinction between domestic (Irish and Irish subsidiaries of international banks) and other (mainly IFSC banks and other banks who have operations or branches in Ireland).  The liabilities of Irish banks with the ECB was €94.5 billion.  Some €37.5 billion of the credit extended by the ECB to banks in Ireland was to banks who have virtually nothing to do with Ireland apart from having operations in Dublin 1.  Here is a graph we have used before.

Second, among domestic banks (of which there are 20) we must make the distinction between the six banks covered by the bank guarantee scheme (AIB, BOI, Anglo, IL&P, INBS and EBS) and the other Irish banks or banks with Irish subsidiaries which come under the heading of domestic banks.  A full list of the banks operating in Ireland can be seen here.  Unfortunately, the Central Bank do not provide data on this very important distinction, therefore we do not know how much of the €94.5 billion was consumed by banks under the guarantee.  We can assume that it is a lot, and maybe most, but we can do no better than that.

The same caveats also apply to the Emergency Liquidity Assistance (ELA) provided by our own Central Bank.  However, we have even less information about this (where did the get the money for a start?) and we do not even know the breakdown between domestic and non-domestic banks.  Also, we do not even know exactly how much ELA has been extended by the Central Bank.  Monies provided under this scheme are included under the catch-all heading of 'Other Assets' in Central Bank’s balance sheet.  This category has leapt up in recent months but we do not have a breakdown of it.  Again from a previous post.

We can see that the 'Other Assets' category was around €14 billion for the year up to August 2010 (though it was substantially lower before then). Since last August it has gone into a vertical ascent and jumped to over €50 billion.  Again it is likely that ‘lots’ of this is provided to the guaranteed banks, but in general we can only assume this.  However, from the financial results published during the week we do know that Anglo accounts for €28.1 billion of the ELA and that has justifiably worried some people.

Then, there is the national sport that has become estimating our 'National Debt'.  Much of this is ridiculous and sees numbers like €300 billion and more bandied about.  People are staggeringly selective in the figures they choose to include or exclude in these “sums”.

In most cased when adding the liabilities of the banks it is only monies owed to the ECB and Central Bank that are included? Is this some sort of special liability? And as we have seen the figures used are subject to some strong caveats that most people ignore.  Why are the rest of the liabilities of the banks omitted?  Total bank liabilities were €1,168 billion (€1.2 trillion!) at the end of December (or €742 billion if you limit it to domestic banks).  Do these creditors not count?  Of course they do, and like the other liabilities on our banks balance sheets there are assets, albeit of questionable quality in many cases, to match them (or some of them!).

Finally, the monies the banks have been taking from the central banks are not new liabilities.  They always had them, it's just that they owed them to someone else.  Since September 2008, Irish banks have shed €168 billion in deposits.  This has been driven almost entirely by a €152 billion collapse in deposits from monetary financial institutions from the rest of the world as shown here.

The banks needed money to pay back these deposits and also bondholders as we will see in a subsequent post.  As they had no one else willing to deposit the money (or perhaps didn’t look too hard to get it??), they turned to the ECB banks for funding to repay these deposits and then to the Irish Central Bank when the ECB stopped accepting the collateral (them dodgy assets again) being offered by the banks.

The money borrowed from the ECB and under the ELA isn't a new liability being heaped upon our ailing banks, it's just the liability moving around.  Obviously, it would be better if our banks were not turning to the lender of last resort. We already knew our banks were goosed. Whether they owe the money to depositors and bondholders or the ECB is interesting and does have some importance.  It is a serious development and the ECB is a more serious creditor, but it does not merit the hysteria that inaccurate use of the figures generates. 

Core Deflation Eases

This morning the CSO have released the January Consumer Price Index.  The overall rate shows annual inflation running at +1.7%.  We have been tracking a core measure of inflation that excludes the effect of energy and mortgage interest prices.  Although, core inflation remains negative, it did ease significantly in January.

The rate of core inflation increased from –1.1% in December to –0.5% in January.

The CSO provide prices indices for 13 commodity groups.  Here are the indices that are shown lower prices when compared to three years ago.

The price changes since January 2008 are:

• Food and Non-Alcoholic Beverages (-5.15%)
• Clothing and Footwear (-20.44%)
• Housing, Water, Electricity, Gas and Other Fuels (-14.36%)
• Furnishings, Household Equipment and Routine Maintenance (-8.43%)

Two other categories have shown small price drops but are not shown on the graph. These are Recreation and Culture (-1.97%) and Restaurants and Hotels (-0.77%).  Here the commodity groups that show rising prices since January 2008.

The price changes are:

• Alcoholic Beverages and Tobacco (+5.47%)
• Health (+10.47%)
• Transport (+2.39%)
• Communications  (+3.66%)
• Education (+14.04%)

Loans from Irish Banks

After a look at deposits it wasn’t much of a stretch to run the same graphs for loans.  Here is the total amount of loans issued by all banks.

This has fallen from the highs seen towards the end of 2008, and although not like the regime shift seen in deposits there was an accelerated decline in the last few months of the year with a drop from €868 billion in October to €812 billion in December.

Of the loans issued by banks operating in Ireland, nearly 70% comes from domestic banks.  See list here. 

We can see that the greater decline in the last two months(€36 million versus €20 million) has occurred in loans from non-domestic banks, though over an 18-month period the decline in loans from domestic banks is greater.  Looking at who domestic and non-domestic banks have been lending to.

Nearly three-quarters of the loans from domestic banks are to Irish residents and all the decline of loans by domestic banks has been in this category.  The stand-out feature of the breakdown of loans by other banks is the volatility jump in loans to other Eurozone residents in the last few months of 2010.

The final set of graphs present a breakdown of loans to Irish, other Eurozone, and Rest of the World residents by sector.

Credit Cards in 2010

The release last week of the Central Bank’s Money and Banking Statistics allows us to update an infrequent analysis of credit card statistics in Ireland.

The headline figure of total credit debt was 6.3% lower in December 2010 than at the same point of 2009. *

* As we will see below there is an anomaly in the December 2010 data which may affect the accelerated rate of decline seen in December.  Somebody may be able to offer an explanation.  See next *.

[UPDATE: I have an explanation! See bottom of post]

Total credit card debt has not shown any significant annual increase since the start of 2009, but it was in the latter half of 2010 that it actually began to fall.  The total number of credit card in issue peaked in January 2009 at 2.38 million.  Since then it has fallen and stood at 2.23 million in December 2010. 

Nearly 93% of credit cards issued are personal cards and all the fall of 150,000 has occurred here.  There are 156,000 business credit cards in issue in December 2010, only slightly down on the 158,000 that were in issue in December 2008.  Here are the monthly changes in the number of personal credit cards in issue since January 2007.  The largest monthly drop of 36,0000 occurred in the month just past.  We cannot tell what proportion of these are cancelled by the consumer or written down by the lender.

We will now looking in more detail at the actual amount of debt on these credit cards, and two of the key drivers of this statistic, monthly credit card purchases and monthly credit card repayments.

The total balance outstanding on credit cards in December was €2.9 billion, which is pretty much the level it stood at back in January 2008.  After sustained growth from 2002 to 2007, our total credit card debt has been largely stable over the past three years.

When we look at the monthly activities on credit cards we see that these have been trending down in recent years.  In 2010, the average monthly spend on credit card was €939 million.  Back in 2007, the equivalent figure was €1,047 million.  Our credit card balances mightn’t be coming down (until recently) but there has been a reduction in spending on credit cards.  This means that the ratio of outstanding debt to new expenditure has been getting larger and has increased from an average of 2.5 five years ago to 3.5 now.

This graph isolates the monthly new spending and repayments from the graph above that also included total debt.  The drop in monthly credit card activity is clearly evident. 

The two lines overlap extensively, but it is interesting to note that the quartic trend line for repayments has been above the trend line for new spending since the end of 2007.  We will return to this anon but here is the annual change in new monthly spending.

The most severe drops were recorded in 2009, but there was no month in 2010 when spending exceeded the equivalent amount from a year before.   Last month new spending on personal credit cards was €824 million.  Twelve months previously it had been €929 million, while in December 2007 it was €1,136 million (which was to be its zenith).  The fall over that three year period is 27.4%.

If we return to the monthly spending and repayment lines but isolate them for the past three years. 

For 29 of the past 36 months repayments on credit cards have exceeded new spending on personal cards.   Here is the gap between spending and repayments back to 2002

In the last three years total repayments on credit cards have exceeded total new spending by €1,091 million.  Over the same period, as we saw above, the aggregate balances on credits cards have declined from €2,938 million to €2,911 million – a fall of only €27 million.  So what happened to the other €1billion and change?

The reason for this difference is because spending and payments alone do not account for credit card balances - the extra amount is accumulated interest (and other charges).

The Central Bank do not give data on the amount of interest added to credit card balances but we can infer it given that the monthly change is approximately new spending plus interest added minus monthly repayment. The change may also be the result of some non-interest charges and duties. Looking at the approximate monthly interest payments and charges since 2005. *

*This graph also shows the anomaly with the December 2010 numbers.  The numbers suggest that interest and charges added to balances during the month were negative (-€48 million).  Per the data, there was €963 million of new spending on credit cards in December.  During the month some €939 million of repayments were made, €24 million less than spending.  However, that data also say that even though spending was greater than repayments, balances actually fell by €24 million during the month.  Is there any way of explaining this? Repayment of interest or other overcharges?

This accounts for the €1 billion that has been ‘repaid’ off credit cards yet the total debt has hardly declined at all.  The leaks occur in April of each year when the annual government duty on credit cards is charged which could have brought in about €150 million over the past three years.  Since January 2008 €1,011 million has been added to credit card balances through interest and charges and it appears that about €850 million of this is interest.

With balances averaging €3,000 million over the period it is pretty easy to infer that the average interest rate been charged on this money is in the region of 10%.  Credit card debt is expensive debt.  If we look at the average balance on personal credit cards we that even though repayments have exceeded new spending for most of the past three years the average balance has hardly moved at all.

In January 2008 the average balance on personal credit cards was €1,295.  At the end of 2010 the figure was €1,340.  As before our conclusion remains the same:

Our credit card balances are increasing not because we are spending more than we are paying (we do the opposite) but because of the interest on outstanding balances. Although we generally pay the equivalent of our monthly spend each month we do not pay down enough to cover the accumulating interest and reduce the outstanding balances.

UPDATE:  The reason for the strange patterns seen in the December 2010 figures can be attributed to the departure of Bank of Scotland (Ireland) from the Irish market.  Their outstanding products in December were transferred to Bank of Scotland (UK) and no longer appear in the Central Bank’s Credit Card statistics.  With this in mind, we will have to be careful about drawing inferences of changes in the credit card market based  on the December figures.

Deposits in Irish Banks: A Bank Run?

The release each month by the Central Bank of the Money, Credit and Banking Statistics has seen a shift in interest from the surge in private sector credit that occurred during the false Celtic Tiger phase to the rapid decline in deposits in Irish banks.

Here is a graph of the attention-grabbing trend.  Deposits in banks have been declining since early 2009 but there has been a marked acceleration in this fall since August 2010, with deposits falling by €200 billion in that time.

This measure of total deposits includes all credit institutions operating in Ireland, thus banks operating in the IFSC will be included even though they may have very limited links to the Irish economy.  The Central Bank allows us to break down the above total into domestic credit institutions and other credit institutions.  See this document which lists all credit institutions operating in Ireland.

When we break down deposits into those with domestic banks and those with non-domestic or other banks we see that the €200 billion drop since August has been pretty evenly split between the two groups.  Domestic banks have seen deposits drop by €95 billion since August.  We will have a closer look at the exit of this €95 billion.

Here we get a breakdown of the origin of the deposits.  It is evident that the fall in the deposit base of domestic banks is because of a huge withdrawal of deposits from rest of the world residents.  Since August these deposits have fallen from €193 billion to €121 billion.  As London is outside the eurozone it is likely that a lot of the deposits classified as rest of the world originated from here.

Deposits from Irish residents were largely static up to October, but in November and December there was a drop of €11 billion with deposits falling from €303 billion to €292 billion.  Like deposits from rest of the world residents, deposits from other Eurozone residents have been shown a steady decline since August and fell from €29 billion to €16 billion in the last five months of the year.

Deposits from Irish residents in domestic residents are down, but we know that the Irish savings rate is in excess of 10%.  Where are the existing and new deposits going?  If we look at a breakdown similar to the above for ‘other’ banks operating in Ireland we start to get an insight.

While both other Eurozone and rest of the world residents have been reducing their deposits in other credit institutions operating in Ireland, the last month of the year saw a fairly dramatic jump in deposits in this banks by Irish residents.  In December alone these deposits jumped from €35 billion to €54 billion.  This €19 billion increase in deposits by Irish residents in other banks is greater than the €11 billion decrease in deposits in domestic banks.

Although deposits from all sources are declining it is clear that deposits from rest of the world residents make up the bulk of the fall.  Since August these are down by €118 billion and the main withdrawer of funds have been monetary financial institutions who have taken out €99 billion since August and likely reflects Irish banks difficulties in obtaining funds from wholesale money markets.  This graph is for all credit institutions operating in Ireland. 

Here is a similar graph from deposits from Other Eurozone residents.  The series had been moving relatively steadily until October where there was a €78 billion drop in deposits from monetary financial institutions (more money market troubles?) and a €48 billion rise in deposits from general government (up from essentially nothing).  Since them monetary financial institutions have been remarkably stable and general government deposits have fallen back to €19 billion.

Of course, as we said above, most of the Eurozone deposits are held in non-domestic banks.  Of the €152  billion  of deposits that originated in the Eurozone only €16 billion was placed with domestic banks and this is down from the level of €29 billion recorded back in August.

Finally, we look at the breakdown of deposits from Irish residents. First up, households.

[Note the the break in the series in January 2009 is as a result of Credit Unions been added to the Central Bank’s banking statistics.  There is no other significance to this.]

For virtually the first 11 months of the year, deposits by Irish households were declining.  This largest fall was in November (down nearly €3 billion) but this was reversed in December which saw a €1 billion increase in deposits and likely placed in non-domestic banks.

Turning to the other categories of deposits from Irish residents.  All of these declined in December.

Virtually all measures of deposits in Irish banks have been falling in recent months.  Here is what has been filling some of the the gap.

And the Irish Central Bank has been doing its bit as well.  At a time when the policy is to make Irish banks smaller by reducing their asset base (loan books) here are the assets of the Irish Central Bank.

Since the start of 2008 the assets of the Central Bank have risen almost four fold.  Most of this increase can be attributed to two categories, though the surge in the  funds used under Main Refinancing Operations reflects the increased contribution by the Eurosystem of central banks rather than any unilateral action by the Central Bank of Ireland.

The surge since August can clearly be seen and this is the money that has been used to fund the outflow of deposits.  The notable category is Other Assets which is money the Central Bank has been ‘printing’  since Irish banks have seen huge reductions in their deposits from other financial institutions in the EU and the rest of the world. I hope we get it back.

€6 Billion From A Wealth Tax? Not with these sums

Only a dope could have this hope.

One suggestion from the United Left Alliance is that €6 billion can be raised annually from a 5% wealth tax.  This proposal has no grounding in reality and is populist poppycock.

The figure of €6 billion is attributed to analysis by an old friend, Tom O’Connor.  The article which contains the analysis can be read here: Wealthy Irish have €121bn and should be taxed more.  Here is the only accurate calculation of this loony proposal from the ULA: 5% of €121 billion is €6.05 billion.  The rest is nonsense.

Let’s start with Mr O’Connor’s “analysis” where the conclusion that “33,000 millionaires hold €121 billion”.  The numbers used come from the 2006 report by Bank of Ireland Asset Management on The Wealth of The Nation.  You can read this short report here. 

Much of the basis for the proposition comes from the numbers in this table from page 13 which the report admits are “very approximate estimates”.

From here things get messy.  Tom O’Connor, in his piece, starts with

Firstly, the report estimated that there were 330 individuals whose wealth well exceeded €30m. If we take a very conservative estimate of each holding €40m, then the collective wealth of these 330 individuals was €13.2bn

The report also stated that there were 3,000 millionaires whose wealth ranged from €5m-€30m. Taking the midpoint value of €18m, this means that that these 3,000 individuals held €54bn in wealth. The remaining 29,670 millionaires held between €1m-€5m each. If we take the midpoint here of €3m, then these 29,670 millionaires were worth €89bn in total.

Of course the figures in the table are 330, 2,970 and 29,700 and not the 330, 3,000 and 29,670 used by Mr O’Connor but that is not his worst crime.  Extrapolating the total wealth from the crude figures given in the table is difficult (impossible?) but why should we let the facts get in the way of a good story.   In Mr O’Connor’s article we are told that the wealth of these 33,000 millionaires in 2006 was €156.21 billion.

The smallest part of this comes from the 330 people with a net worth of €30 million or more.  An average figure of €40 million is plucked for these people giving the total of €13.2 billion.  We have no basis to argue against this figure as it is a pure guess.  The other two categories can be scrutinised in a little more detail.

It is clear that the shape of the distribution of wealth has little influence on this analysis.  Amazingly, for the groups with net worth of between €1 and €5 million and between €5 and €30 million the midpoints are used to provide an average.  Only if the distribution of wealth were uniform would this be appropriate.  The figures themselves show how skewed the distribution of wealth is.  There are estimated to be 10 times more millionaires in the €4 million range from €1 to €5 million than in the €25 million range from €5 to €30 million.

The distribution of wealth is a hugely skewed distribution and there is no way that the mean value of a group of people within a particular range will be the midpoint of that range.  The mean value will undoubtedly be closer the the lower end of the range.  The figures of €18 million and €3 million chosen above are nonsense.  The total of €156.21 billion is nonsense.

The next bold move is to translate this 2006 figure to a 2010 equivalent.  Cue Tom:

Fortunately, we can update the 2006 figures to check this out: the original report tells us  that these millionaires held 71% of their wealth in property; 3% in bonds; 10% in cash and 16% in equities. The breakdown of the original €156bn is thus: €112.4bn in property; €15.5bn in cash; €4.7bn in bonds and €23.4bn in equities.

Unfortunately the report tells us nothing of the sort.  The breakdown provided above is in the report but refers to ALL households and not the 33,000 millionaires.  See top of page 9 of the report.  And actually the proportion of assets held in property in 2006 was 72% (not 71%) and in equities was 15% (not 16%).  The figures in brackets are the ones used by Tom O’Connor but they what they were estimated to be in 2005 and had changed for 2006.

It is likely that the asset mix of millionaires is substantially different to the asset mix of the entire population.  It does not take too much work to find the report confirm this (page 12).

The focus on the asset base excluding residential property of the top 1% of the population is because residential property is only a small component of their overall assets.

We can be fairly sure that a “small component” is somewhat lower than 72%, or 71% or whatever makey-uppy figure you want to use.   How is it plausible for someone to suggest that nearly three-quarters of the wealth of Ireland’s millionaires is attributable solely to property?

Anyway using these erroneous proportions and some estimated value changes since 2006 we get the following conclusions.

There is an asterisk beside the 2010 property assets total as a 33% drop from the suggested 2006 figure of €112.5 billion would actually bring this to €75 billion.  But who’s worrying about two and a half billion.  Now even, these assumed changes in values are way off.  Property values are down by more than 33% and somebody should tell Sean Quinn that Ireland’s 33,000 millionaires have lost a total of €1.5 billion since 2006.  I think he managed twice that all on his own (though it was through CFDs rather than equities) and surely our millionaires took a bit of a hit as part of the huge drop in equity in the banks which must be around €40 billion or so. 

That aside, the fact remains that this total net worth figure of €121 billion for Ireland 33,000 supposed millionaires is nonsense.  Even if the weights are appropriate (they are not), the value changes used are also pretty weak (and net worth does include residential property unlike the claim made in the O’Connor article).

Actually, I’m not quite sure why he went to all this trouble.  Maybe, it was to try to give some legitimacy to the analysis but this clearly did not work.  However, there is a figure that is frequently quoted in the Bank of Ireland report (see pages 1, 2, 12, 13 and 14) and it is that:

The asset base (excluding residential property) of the top 1% of the population increased from €86 billion in 2005 to €100 billion last year, an increase of 16%.

Wouldn’t it have been so much easier to say this rather than go through all the rubbish above.  So 1% of the population had €100 billion of assets in 2006.  This €100 billion figure looks a little to much like trying get a nice round attention-grabbing number.  These is little basis for this (or in fact any of the numbers in the Bank of Ireland report) and it is largely based on guesswork with little or no reference to actual data.

If this supposed €100 billion of assets from 2006 had just stayed still, the proposed 5% wealth tax would yield €5 billion.  Of course wealth does not stay still and would have shown significant declines since 2006.  I can’t say by what amount but it would reduce the yield on this proposed tax.   A 20% reduction (plausible?) would bring the yield down to €4 billion.  So another €2 billion gap needs to be filled from the €6 billion they claim it would yield.

Anyway, at €100 billion, a 5% tax would yield €5 billion in the first year.  If there was zero growth in values, the next year there would only be €95 billion in assets to tax.  This means we would be down to a yield of €4.75 billion.  After 10 years in this zero growth scenario there would be just €63 billion of the €100 billion assets left and the wealth tax would be yielding €3.1 billion a year.   The only way to keep revenue stable would be to keep increasing the rate.

Of course, the wealth isn’t just going to stay around here to be eroded down to nothing.  Wealth does not stay still and this applies to location as well as value.  A 5% wealth tax would mean assets in Ireland would need to generate 5% to just to hold their value.  Any positive inflation would require a higher rate to hold their real value and then they would need to match the equivalent return from investing elsewhere to make it worthwhile to keep the asset in Ireland.  This suggests that double-digit asset growth is needed (every year!) in order to avoid wide scale capital flight from Ireland.

A 5% wealth tax on a tiny proportion of the population might make for good electioneering but it makes for bad economics.  But then we knew that before we started.  And to be fair to Tom O’Connor his piece is an argument for a 1% wealth tax which is a plausible suggestion.  It is the loony left who made the jump to 5%.

January Exchequer Returns

The first Exchequer Returns of the year have been released by the Department of Finance.  Here are the key documents.

• Exchequer Statement
• Analysis of Tax Receipts
• Analysis of Net Voted Expenditure
• Information Note from the Department

You can find a comparison of the performance of tax receipts for the eight tax headings for January 2010 and 2011 in the Analysis of Tax Receipts document linked above.  Here is a table that goes back to 2007.

Although the annual comparison is positive (+€57 million or +1.9%) if we look over a longer time frame we can see the scale of the collapse in Irish tax revenues (-€1,614 million or –34.0% since 2007).

As could be expected a lot of this fall is due to the virtual disappearance of revenues from our the largely property-dependent transaction taxes (Stamp Duty, CGT and CAT) which have fallen from a combined total of €556 million in 2007 to a paltry €66 million in 2011.  However, this only accounts for one-third of the fall in tax revenue.

Although Income Tax continued to show annual declines in 2011, it is ‘only’ €120 million (but still 10.8%) down on the 2007 level.  The bulk of the drop in January Tax revenues is accounted for by our consumption taxes (VAT and Excise Duty).  These brought in €2,798 million in 2007, but only raised €1,955.   This €843 million fall (or 30.0%) in these two tax heads accounts for more than half of the total drop seen in January tax receipts since 2007.

The 39.7% drop in Excise Duty revenues has come in the face of increases on duties on fuels via the Carbon Tax in two recent budgets (though there was an offsetting reduction in duties on alcohol).  Our VAT rates have remained unchanged, receipts are down 28.2%.  This is likely driven by the grounding of the construction sector to a virtual standstill and a reduction (as well as a reorientation) of consumer spending.

Thankfully, in January we do not get the charade of having the real tax returns compared to the artificial forecasts of the Department of Finance.  Expect this to resume in February as today also saw the release of the Profile of Tax Revenues for 2011 which provides details of the monthly and cumulative expected receipts across the eight tax heads.

Here is a simple comparison of the cumulative total tax revenue forecasts for 2011 to the 2010 performance.

Even with the changes announced in the recent budget tax revenues in the early part of 2011 are expected to be very similar to those seen in 2010.  It is only from July onwards that any improvement is forecast.  [The DoF forecast does not seem to account for the change in the ‘Pay and File’ deadline that went through with the recent Finance Bill (Act?).]

On the expenditure site is it noteworthy that Current Expenditure continues to rise (up €24.4 million to €3,722.1 million this year from €3,697.8 million last year.  As a result of the reorganisation of Government Departments last March it is hard to identify the source of this increase and given the smoke and mirrors of the Irish system of public finances the DoF Information Note attributes this increase in expenditure “to the reclassification of health levy receipts”.  Expenditure is up because receipts have been reclassified. Huh?  More on this here.

Capital expenditure is down €220.8 million but the bulk of this is due to a fall in capital receipts to the Exchequer from EU Agriculture programmes and an associated drop in capital payments.

On the non-voted side the stand-out figure is the huge drop in interest payments which fell from €311 for January 2010 to €32 million.  Has someone done a stellar job in renegotiating the EU/IMF interest rate?  Of course not, and with our increased borrowings or debt service costs must surely be higher than 12 months ago.  What has actually happened is that debt interest in the early part of the year is been paid for from something called the Capital Services Redemption Account (no, me  neither).  Unlike the Exchequer Account, this CSRA does not need a monthly return published so we will be in the dark on our debt interest costs for a while and annual comparisons will be difficult though we do know that this source will fund €600 million of debt interest.

Overall, the Exchequer Account shows a lower deficit of €483 million for January 2011 compared to €778 million in 2010.  However, of this €295 million we can immediately account for €228 million due to the re-categorisation of debt servicing costs.  And if debt interest costs are higher than last year (which they undoubtedly are) it is probable that all of this €295 million ‘improvement’ is eliminated.