ICAI Practice Day Presentation

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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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ICAI Practice Day Presentation

  1. 1. 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
  2. 3. Explaining The Tiger <ul><li>Distinguish between pre-boom factors: </li></ul><ul><li>1 . Foreign direct investment. </li></ul><ul><ul><ul><ul><li>Industrial policy </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Corporation tax </li></ul></ul></ul></ul><ul><li>2 . External assistance. </li></ul><ul><li>3 . Investment in education. </li></ul>
  3. 4. Explaining The Tiger <ul><li>And factors that combined to ignite the boom: </li></ul><ul><li>4. Centralised wage bargaining . </li></ul><ul><li>5. Fiscal policy. </li></ul><ul><li>6 . Upturn in W orld (US) economy. </li></ul><ul><li>7 . Achieving EMU entry criteria. </li></ul><ul><li>8 . Exchange rate policy. </li></ul><ul><li>9. Small is beautiful. </li></ul><ul><li>10. ???? </li></ul>
  4. 5. Are we all out of luck?
  5. 8. Sub-Prime Crisis <ul><li>Ninja Loans => Rising Defaults </li></ul><ul><li>Transmission Mechanism </li></ul><ul><ul><li>Collaterised Debt Obligations (CDOs) </li></ul></ul><ul><ul><li>Credit Default Swaps (CDSs) </li></ul></ul><ul><ul><li>The US is paying for the same mortgage three times! </li></ul></ul><ul><ul><ul><li>Bail out of Wall Street </li></ul></ul></ul><ul><ul><ul><li>Bail out of the Insurers (AIG) </li></ul></ul></ul><ul><ul><ul><li>Proposed bail-out of homeowners </li></ul></ul></ul><ul><ul><li>Crisis of Confidence => Risk Premium Increase </li></ul></ul><ul><ul><li>Treasuries & Gold Price up </li></ul></ul>
  6. 9. Iceland and Ireland
  7. 10. Country Vulnerability Scorecard Source: Credit Suisse Global Equity Strategy 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+
  8. 12. The Public Finances Source: Dept of Finance
  9. 13. The Public Finances Source: www.irisheconomy.ie
  10. 14. Built on Construction Source: Goodbody Stockbrokers
  11. 15. Source: Goodbody Stockbrokers
  12. 16. Making Forecasts <ul><li>The following are four estimates for the revenue from Stamp Duty in 2008. </li></ul><ul><li>€ 3.055 billion – Budget 2006 </li></ul><ul><li>€ 4.125 billion – Budget 2007 </li></ul><ul><li>€ 2.855 billion – Budget 2008 </li></ul><ul><li>€ 1.780 billion – Budget 2009 </li></ul><ul><li>These are all estimates of what should be the same figure! </li></ul><ul><li>The forecast from Budget 2008 was still 73% above the actual figure for 2008 of €1.650 billion.. </li></ul>
  13. 17. Tax Revenue 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 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
  14. 18. Expenditure Source: Dept of Finance 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
  15. 19. The Public Finances <ul><li>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%) </li></ul><ul><li>The total shortfall over the six year period is €70 billion. </li></ul><ul><li>This is after annual “adjustments” of €16.5 billion have been achieved. </li></ul>
  16. 20. The Public Finances <ul><li>Here are the projected adjustments for each year.  Note that the adjustment in one year is expected to carry over to all subsequent years. </li></ul><ul><li>2009: €2 billion </li></ul><ul><li>2010: €2 billion + €4 billion </li></ul><ul><li>2011: €2 billion + €4 billion + €4 billion </li></ul><ul><li>2012: €2 billion + €4 billion + €4 billion + €3.5 billion </li></ul><ul><li>2013: €2 billion + €4 billion + €4 billion + €3.5 billion + €3 billion </li></ul><ul><li>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. </li></ul><ul><li>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!! </li></ul>
  17. 21. Exchequer Statement for Period Ended 31 December 2008, €000 Source: Dept of Finance 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)
  18. 22. Tax Revenue for Period Jan&Feb 2009, €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
  19. 23. Any Good News? Source: Central Bank of Ireland

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