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The Continuing Constraints on Ireland's Public Finances

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Two constraints: Deficit and Debt
Two points: Revenue and Expenditure

Published in: Economy & Finance
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The Continuing Constraints on Ireland's Public Finances

  1. 1. The Continuing Constraints on Ireland’s Public Finances Seamus Coffey
  2. 2. Outline Two Obvious Constraints: 1 The Deficit: Still Not Eliminated 2 The Debt: High but Falling Two Points to Note: 1 Expenditure: We Spend Plenty 2 Revenue: 80% of CT from MNCs
  3. 3. -30 -20 -10 0 10 2001 2003 2005 2007 2009 2011 2013 2015 2017 Government Balance, %GDP economic-incentives.blogspot.com Source: IMF, World Economic Outlook Database (Apr 2015) Public Balance, %GDP, 2001-2014 Ireland: General Government Balance
  4. 4. -30 -20 -10 -3 10 2001 2003 2005 2007 2009 2011 2013 2015 2017 Government Balance, %GDP economic-incentives.blogspot.com Source: IMF, World Economic Outlook Database (Apr 2015) Public Balance, %GDP, 2001-2014 Ireland: General Government Balance
  5. 5. -30 -20 -10 0 10 2001 2003 2005 2007 2009 2011 2013 2015 2017 Government Balance, %GDP economic-incentives.blogspot.com Source: IMF, World Economic Outlook Database (Apr 2015) Public Balance, %GDP, 2001-2014, projections 2015-2018 Ireland: General Government Balance
  6. 6. 0 20 40 60 80 100 2001 2003 2005 2007 2009 2011 2013 2015 2017 Government Expenditure Government Revenue economic-incentives.blogspot.com Source: IMF, World Economic Outlook Database (Apr 2015) Annual government revenue and expenditure, €billion Ireland: General Government Accounts
  7. 7. 0 20 40 60 80 100 2001 2003 2005 2007 2009 2011 2013 2015 2017 Adjusted Government Expenditure Adjusted Government Revenue economic-incentives.blogspot.com Source: IMF, World Economic Outlook Database (Apr 2015) & Eurostat Adjusted annual government revenue and expenditure, €billion Ireland: General Government Accounts - Excluding Banking Measures
  8. 8. Non-Pay Current Expenditure Pay and Pensions Expenditure Capital Expenditure Total Voted Expenditure €bn €bn €bn €bn 2007 30.45 18.16 7.82 56.43 2008 34.05 19.34 9.01 62.40 2009 35.65 20.07 7.33 63.05 2010 35.40 18.78 6.38 60.56 2011 34.29 18.55 4.51 57.36 2012 33.71 18.44 3.81 55.96 2013 33.18 17.81 3.39 54.37 2014 32.76 17.72 3.47 53.95 Diff 09-14 -2.89 -2.35 -3.86 -9.10 Exchequer Spending
  9. 9. 0 20 40 60 80 100 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Adjusted Government Expenditure Adjusted Government Revenue economic-incentives.blogspot.com Source: IMF World Economic Outlook (Oct 2015) Adjusted Annual government revenue and expenditure, €billion Ireland: General Government Accounts - Excluding Banking Measures
  10. 10. 0 20 40 60 80 100 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Adjusted Government Expenditure Adjusted Government Revenue economic-incentives.blogspot.com Source: IMF World Economic Outlook (Oct 2015) Adjusted Annual government revenue and expenditure, €billion Ireland: General Government Accounts - Excluding Banking Measures
  11. 11. 0 20 40 60 80 100 120 1990 1995 2000 2005 2010 2015 2020 Gross Debt economic-incentives.blogspot.com Source: IMF World Economic Outlook, April 2015 General Government Debt, %GDP 1990-2014 Ireland: General Government Debt
  12. 12. 0 20 40 60 80 100 120 1990 1995 2000 2005 2010 2015 2020 Gross Debt economic-incentives.blogspot.com Source: IMF World Economic Outlook, April 2015 General Government Debt, %GDP 1990-2014, IMF Projections from 2015 Ireland: General Government Debt
  13. 13. 0 20 40 60 80 100 120 1990 1995 2000 2005 2010 2015 2020 Gross Debt economic-incentives.blogspot.com Source: IMF World Economic Outlook, April 2015 General Government Debt, %GDP 1990-2014, IMF Projections from 2015 Ireland: General Government Debt
  14. 14. 0 20 40 60 80 100 120 1990 1995 2000 2005 2010 2015 2020 Gross Debt Net Debt economic-incentives.blogspot.com Source: IMF World Economic Outlook, April 2015 General Government Debt, %GDP 1990-2014, IMF Projections from 2015 Ireland: General Government Debt
  15. 15. Sector Corporation Tax % of CT Paid €million A Agriculture, Forestry and Fishing 57 0.3% B Mining & Quarrying 182 0.9% C Manufacturing 7,349 35.9% D Electricity, Gas, Steam & Air-Conditioning Supply 74 0.4% E Water & Waste Management 35 0.2% F Construction 395 1.9% G Wholesale and Retail Trade 2,706 13.2% H Transportation & Storage 260 1.3% I Accommodation & Food Service Activities 148 0.7% J Information and Communication 2,285 11.2% K Financial & Insurance Activities 5,445 26.6% L Real Estate Activities 207 1.0% M Professional, Scientific & Technical activities 720 3.5% N Administrative & Support Service Activities 379 1.9% P Education 18 0.1% Q Human Health & Social Work Activities 53 0.3% R Arts, Entertainment and Recreation 90 0.4% S Other Services 44 0.2% Total Economy 20,457 100.0% Corporation Tax Revenue 2008-2012
  16. 16. Contribution of US-owned Firms to the Irish Economy* Item 2008 2009 2010 2011 2012 €m €m €m €m €m Production value 80,900 80,127 100,263 104,996 109,670 Purchases of goods & services purchased for resale in the same condition as received 24,114 26,728 16,309 18,437 17,005 Turnover 104,875 106,750 116,330 123,181 126,876 Total purchases of goods & services (75,365) (78,043) (84,556) (88,013) (90,038) Value added at factor cost 28,972 28,253 31,460 34,692 35,919 Personnel costs (5,841) (5,613) (5,938) (6,028) (6,176) Gross operating surplus 23,131 22,641 25,522 28,664 29,742 Gross investment in tangible goods 2,635 1,837 2,103 2,930 5,314 Number of enterprises 750 741 803 933 858 Number of persons employed 104,132 94,155 97,811 99,589 99,525 Source: Eurostat * Refers to the “business economy”
  17. 17. 0.75 0.85 0.94 0.96 0.97 0.97 0.97 0.98 0.98 0.98 0.98 0.99 0.99 0.99 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.01 1.02 1.02 1.02 1.04 1.04 0.00 0.25 0.50 0.75 1.00 GNi/GDP Luxembourg Ireland Czech Rep. Poland Cyprus Hungary Lithuania Estonia Croatia Bulgaria Slovakia Portugal UK Slovenia Spain Latvia Italy Greece Malta Romania Austria Finland Belgium France Netherlands Germany Denmark Sweden Source: Eurostat Ratio of Gross Domestic Product (GDP) to Gross National Income(GNI), 2013 GNI/GDP Ratio
  18. 18. Implications • Fiscal ratios should be assessed in terms of GNP. • Limited impact on balance. • Targets a slightly lower debt level in the long run. • May slightly reduce fiscal space available under the ‘expenditure benchmark’.
  19. 19. Implications • Fiscal ratios should be assessed in terms of GNP. • Limited impact on balance. • Targets a slightly lower debt level in the long run. • May slightly reduce fiscal space available under the ‘expenditure benchmark’. • Removing MNC profits from National Income in fiscal arithmetic is only the first step. • Should also exclude part of the revenues from MNC and aim for a balanced budget excluding that. • Could set aside 5% of the gap between GDP and GNP • This is approximately half of the effective tax rate of corporate profits.
  20. 20. Consequences • This would mean budgeting for an overall surplus in times of growth. • The associated surplus should be saved in a “Stability Fund” • Which then allows for fiscal space in a downturn. • Rules based on employment projections: • Make contribution when growth > 1.5% • Freeze contributions if growth < 1.5% • Allow withdrawals for capital projects if growth < 0.5%
  21. 21. Conclusion Two Obvious Constraints: 1 The Deficit: Should be eliminated 2 The Debt: Diminishing significance Two Points to Note: 1 Expenditure: How we spend matters 2 Revenue: Prepare for the next “Rainy Day”

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