IMF Projections for Ireland

The IMF have released the April 2012 Update of the World Economic Outlook.  The following table extracts some of the updated projections of the IMF for Ireland up to 2017.

Distributional effects of direct taxes and social transfers

Chapter 16 of this 2010 publication from Eurostat has some interesting results based on the EU-SILC (Survey of Income and Living Conditions).  The findings are based on 2007 data but are worth considering.

Original income is defined as:

Original income is income from market sources and includes employee cash or near cash income, non-cash employee income, cash benefits from self-employment, value of goods produced for own consumption, income from rental of a property or land, regular inter-household cash transfers received, interest, dividends, profit from capital investments in unincorporated business, income received by people aged under 16, pensions from individual private plans and old age benefits.

Ireland has by far and away the greatest level of inequality when it comes to original income.  The level of original income in the bottom quintile is more than 15 times lower the level of original income in the top quintile.  The next highest country is Lativa at 11.8 with a weighted EU average of 7.9.

The next column looks at gross income which is original income plus cash benefits where

Cash benefits are a sum of all unemployment, survivor’s, sickness and disability benefits; education-related, family/children related and housing allowances; and benefits for social exclusion or those not elsewhere classified.

The impact of cash benefits on Ireland’s inequality is significant and once cash benefits are included there are four countries that have a quintile share ratio that is higher than Ireland’s.

The final column gives the quintile shares for disposable income where

direct taxes and regular inter-household cash transfers paid are deducted from gross income to give disposable income.

Again Ireland’s relative ranking improves and Ireland is in 8th position in this final column.  Ireland quintile share ratio in 2007 was 5.8 compared to an EU average of 5.1.

Using the 2010 EU-SILC Report for Ireland the equivalent figures for 2010 are

• Original Income: 19.2
• Gross Income: 10.0
• Disposable Income: 8.1

The next table provides similar analysis using Gini Coefficients.

Unsurprisingly, the results for the Gini Coefficients show a similar pattern to those from the income share quintiles.  The concentration coefficients show that, in 2007, Ireland had a benefit system that was just as progressive as the EU average and a direct tax system which was the most progressive.

The next table provides a useful summary of the relative proportions of cash benefits to original and gross income.

Relative to original income Ireland had the joint-third highest level of cash benefits with only Norway and Denmark providing more.  On the other hand Ireland had the joint-third lowest level of direct taxes with only Cyprus and Slovakia taxing less.  In Ireland disposable income was 84% of gross income compared to an EU average of 78%.

Again here are the 2010 equivalents for Ireland

• Original Income: 82
• Cash Benefits: 18
• Gross Income: 100
• Direct Taxes: 13
• Disposable Income: 87

The final table we will consider examines the percentage of gross income that comes from cash benefits.

In each of the first three quintiles Ireland has the greatest proportion of gross income coming from cash benefits is at least twice the EU after in all cases.

The 2010 figures for Ireland are

• Bottom: 51
• Second: 49
• Third: 30
• Fourth: 16
• Top: 6

The increased reliance on cash benefits is evident and this is clearly driven by the increase in unemployment since 2007. 

I’m sure there are a myriad of ways to (mis) interpret these findings and a careful read of the full chapter is necessary.  (pp. 345 to 367 though at least half is tables and graphs)

It should be pointed out that these are not based on equivalised figures so no account is taken of the number of people in each household and the composition of individuals in households by quintiles is likely to differ by country (employed, unemployed, retired, student etc.).  Most importantly it uses 2007 data.

To finish here is one figure from the chapter.

Core inflation jumps higher

This morning’s release of the March Consumer Price Index by the CSO shows that the headline rate of inflation edged higher rising from 2.1% in February to 2.2% in March.  A measure of “core” inflation excluding mortgage interest and energy products reveals a different pattern.  The measure of inflation represents about 85% of the overall index.

Core inflation jumped from 0.7% in February to 1.3% in March and this is the highest this measure has been since January 2009.   Annual inflation in mortgage interest turned negative for the first time in almost two years in March and the contribution of rising energy prices to the CPI also fell slightly.

First Quarter Exchequer Returns

The Department of Finance have released the end-March Exchequer Returns.  The relevant documents are:

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

The Department have improved their presentation of the tax receipts data and much of the analysis that was previously provided here is now included in the release.  This is a welcome development.

Another welcome development is the new Department of Finance Databank which gives monthly Exchequer tax receipts back to 1984.  Expenditure figures are provided in the Department of Public Expenditure and Reform Databank which has been available for some time.

On the whole, the results seem slightly positive.  Tax revenue is up on the year but a lot of that is due to delayed receipts from 2011 and some reclassifying issues between Income Tax and PRSI.  Even accounting for these, tax revenue seems to be performing as expected though there is an unusual dichotomy between the performance of VAT (up) and Excise Duty (down).

The Current Account Balance is a useful indicator of the performance of the public finances.  On first glance this would appear to be getting worse.  In the first three months of 2011 there was a Current Budget Deficit of €4,177 million.  So far this year we have accumulated a Current Budget Deficit of €4,918 million.

There are three factors to note before jumping to the conclusion that the Current Deficit is continuing to deteriorate:

1. The Sinking Fund Contribution of €646 million has already been made for 2012.  In 2011 this transfer of €683 million from the Current to Capital Account did not take place until November.  A year-on-year comparison is unfair on 2012 because it includes a payment that was not made by March of last year.
2. Last year the debt interest cost for the first quarter of the year was €1,425 million, but €577 million of that was paid from the Capital Services Redemption Account with the remaining €848 million coming from the Exchequer Account.  In 2012 all the debt interest bill of €1,658 million was paid from the Exchequer Account.
3. This year’s receipts include €231 million of Corporation Tax which should have been collected in 2011 but a delay meant it was instead included in the January 2012 receipts.

To account for these we will subtract the Sinking Fund contribution from the 2012 deficit, add the interest paid from the CSRA to the 2011 deficit and subtract the delayed Corporation Tax receipts that have been added to this year’s revenue..

That means the comparison is between a deficit of €4,754 in 2011 and one of €4,503 million.  So far in 2012, the Current Budget Deficit is about €250 million better than it was at the same time last year.  It is not clear how much of this is down to timing and whether it will be continued into the second quarter, but it is positive that the current budget deficit is smaller (even if it is only marginally so).

Mortgage Arrears in the Covered Banks

The release over the past few weeks of the Financial Reports of the covered banks has given a useful insight into the mortgage books of the covered banks.  All have generally followed the same template and have provided similar detail.

• AIB (+EBS) (pp. 112-122)
• BOI (pp. 87-102)
• PTSB (pp. 171-177)
• IBRC (pp. 169-173)

Here is a summary of the headline figures.

The full market figures come from the Financial Regulator’s Mortgage Arrears release.  The figure for the non-covered banks (Ulster Bank, National Irish Bank and other lenders) is the residual after the reported totals for the covered banks are subtracted.

It can be seen that there is a wide variation in the loan book performance for owner-occupied mortgages in Ireland across the covered banks.  AIB report the lowest level of arrears of 90 days or more with the highest level by far in the mortgage book of Irish Nationwide which has been subsumed into the Irish Bank Resolution Corporation.

The loss provisions follow a similar pattern with AIB allowing for a loss equal to 1.6% of the mortgage balances at the end of December.  The IBRC have allowed for a loss of over 20% on its owner-occupied residential mortgage book.

The level of arrears is higher in the non-covered banks and they make up about 35% of the market by mortgage balance.

Here is the projected stress-case loss rates from last March’s stress tests and the losses covered under the Central Bank’s three-year loss forecast on which the €24 billion recapitalisation sum was based.  Note that the figures in the stress tests relate to the 31st of December 2010 rather than the end of 2011 as with the figures above.

There is some disagreement between the tables.  Outside of the Irish Nationwide loans, AIB has the highest projected loss rate.  The projected losses are still significantly above the provisions currently being made by the banks.

Daft Report

The Q1 2012 Daft.ie Report on house prices was released this morning.  I provided the introductory commentary to the report which can be read here.

The ‘New’ Bond

The  €3.5 billion increase in Ireland’s government bonds as a result of the Promissory Note transactions announced last Thursday can be seen here.

The change is in the March 2025 bond which now has €11.7 billion in issue rather than €8.3 billion on the last occasion we looked at the Daily Outstanding Bonds Report.

The total amount of bonds in issue has increased to €83.1 billion and when/if the Bank of Ireland component of the announced transactions is put into place, the covered banks will be holding around €16 billion (one-fifth) of these.