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Presentation given to ICAI Practice Day Conference on the Irish Economy: From Poorest of the Rich to Europe's Shining Light - And What's Next?
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CSCA – Annual Practice Day Conference
“Ireland – From Poorest of the Rich to Europe’s Shining Light –
But What’s Next?” Seamus Coffey, Dept of Economics, UCC
Explaining The Tiger
Distinguish between pre-boom factors:
1. Foreign direct investment.– Industrial policy– Corporation tax
2. External assistance.
3. Investment in education.
Explaining The Tiger
And factors that combined to ignite the boom:
4. Centralised wage bargaining.
5. Fiscal policy.
6. Upturn in World (US) economy.
7. Achieving EMU entry criteria.
8. Exchange rate policy.
9. Small is beautiful.
10. ????
Are we all out of luck?
Sub-Prime Crisis
• Ninja Loans => Rising Defaults
• Transmission Mechanism
– Collaterised Debt Obligations (CDOs)
– Credit Default Swaps (CDSs)
– The US is paying for the same mortgage three times!
Bail out of Wall Street
Bail out of the Insurers (AIG)
Proposed bail-out of homeowners
– Crisis of Confidence => Risk Premium Increase
– Treasuries & Gold Price up
Iceland and Ireland
Country Vulnerability Scorecard
Government Debt/GDP
Private Sector
Debt/GDP
Bank Loans/ Deposits
Banking Assets/ GDP
Credit Rating
1. Iceland 122% 435% 204% 1002% BBB-
9. UK 64% 187% 187% 400% AAA
10. US 78% 227% 227% 161% AAA
11. Ireland 41% 186% 186% 266% AAA
37. China 19% 123% 60% 126% A+
Source: Credit Suisse Global Equity Strategy
The Public Finances
Source: Dept of Finance
The Public Finances
Source: www.irisheconomy.ie
Source: Goodbody Stockbrokers
Built on Construction
Source: Goodbody Stockbrokers
Making Forecasts
The following are four estimates for the revenue from Stamp Duty in 2008.
• €3.055 billion – Budget 2006
• €4.125 billion – Budget 2007
• €2.855 billion – Budget 2008
• €1.780 billion – Budget 2009
These are all estimates of what should be the same figure!
The forecast from Budget 2008 was still 73% above the actual figure for 2008 of €1.650 billion..
Jan-Dec 2007 Jan-Dec 2008
Value Added Tax
Income Tax
Excise
Stamps
Corporation Tax
Capital Gains Tax
Customs
Training & Employment Levy
Unallocated
14,496,588
13,572,410
5,837,878
3,185,602
6,390,625
3,105,495
265,904
2,501
0
13,429,602
13,176,857
5,443,338
1,650,792
5,065,894
1,430,080
248,001
1,032
0
Total 47,249,352 40,777,196
Tax Revenue
Source: Dept of Finance
Expenditure
Vote or Group of Votes 2007 2008
Health & Children 12,448,835 13,745,317
Social & Family Affairs 8,180,934 9,399,098
Education & Science 8,443,974 9,031,516
Other 15,534,992 17,136,863
Total 44,608,735 49,312,794
Source: Dept of Finance
The Public Finances
The 2008 outturn and five year projected figures for the General Government Balance in millions are (with % of GDP in brackets)
2008: -€11,796 (-6.3%) 2009: -€17,165 (-9.5%)2010: -€16,271 (-9.0%)2011: -€12,092 (-6.4%)2012: -€9,443 (-4.8%)2013: -€5,537 (-2.6%)
The total shortfall over the six year period is €70 billion.
This is after annual “adjustments” of €16.5 billion have been achieved.
The Public Finances
Here are the projected adjustments for each year. Note that the adjustment in one year is expected to carry over to all subsequent years.
2009: €2 billion
2010: €2 billion + €4 billion
2011: €2 billion + €4 billion + €4 billion
2012: €2 billion + €4 billion + €4 billion + €3.5 billion
2013: €2 billion + €4 billion + €4 billion + €3.5 billion + €3 billion
Add all these up and you get €48 billion on top of borrowing €70 billion. And we already need another €4.5 billion from the April mini-budget.
With planned expenditure of about €50 billion tax revenue will have to hold up in 2009. Based on the figures for the first two months of the year this may be as low as €30 billion!!
Jan&Feb08 Jan&Feb09
Receipts
Tax Revenue
Non-Tax Revenue
Sinking Fund
Other Capital Receipts
Total
7,561,700
25,102
449,360
802,612
8,838,774
5,758,841
60,431
0
757,802
6,577,074
Expenditure
Voted
Sinking Fund
Non-Voted Current Expenditure
Non-Voted Capital Expenditure
Total
7,878,440
449,360
635,663
66
8,963,529
8,008,614
0
634,680
18,540
8,661,834
Exchequer Surplus (Deficit) (124,755) (2,084,760)
Exchequer Statement for Period Ended 31 December 2008, €000
Source: Dept of Finance
Jan-Dec 2007 Jan-Dec 2008
Value Added Tax
Income Tax
Excise
Stamps
Corporation Tax
Capital Gains Tax
Customs
Training & Employment Levy
Unallocated
2,698,714
2,245,397
922,649
372,077
651,752
515,689
46,366
218
46,934
2,246,771
2,080,153
619,622
153,505
410,795
141,135
37,510
145
26,892
Total 7,561,700 5,758,941
Tax Revenue for Period Jan&Feb 2009, €000
Source: Dept of Finance
Any Good News?
Source: Central Bank of Ireland