2. Budget 2013
A Public Finance Perspective
Simon Barry
Chief Economist Republic of Ireland
December 2012
3. Fiscal correction now in its 5th year
Adjustment Package Main consolidation form Planned Impact €bn*
1. July 2008 Expenditure 1.0
2. October 2008
(Budget 2009) Revenue 2.0
3. February 2009 Expenditure 2.1
4. April 2009 Revenue 3.5
(supplementary Budget) Expenditure 1.8
5. December 2009
(Budget 2010) Expenditure 4.1
Revenue 0.1
6. December 2010 Expenditure 4.0
(Budget 2011) Revenue 1.4
Other 0.7
7. December 2011 Expenditure 2.2
(Budget 2012) Revenue 1.1
8. December 2012 Expenditure 2.3
(Budget 2013) Revenue 1.2
Total 27.5
* Figures in all cases are broad orders of magnitude and refer to planned full-year gross impacts
Slide 3
4. Consistency on spending/revenue breakdown remains
in place
Fiscal Adjustments to Date
Spending/Revenue breakdown
Budgets 08 - 12 Budget 2013
Expenditure 65% 65%
Revenues 35% 35%
Source: Department of Finance
Slide 4
5. Budgetary policy over ’08-’12 has, in its totality, been clearly progressive;
the largest reductions in income have been on those with highest incomes
Impact of Budgets 2008-2012 by Income Decile (% of
Income)
%
Bottom 2nd 3rd 4th 5th 6th 7th 8th 9th Top
0
-2
-4
-6
-8
-10
-12
Source: ESRI
-14
Slide 5
6. …but Budget 2013 PRSI change is regressive
Average Tax Rate (%)
Single, No Children, Private Sector
Change 2012 vs. Change 2008 vs.
Gross Income 2008 (low point ) 2012 2013 2013 2013
30,000 12.9 16.8 17.7 0.9 4.8
60,000 27.5 33.4 33.9 0.5 6.4
120,000 35.4 42.7 42.9 0.2 7.5
Married Couple, 1 Incomes, 2 Children, Private Sector
Change 2012 vs. Change 2008 vs.
Gross Income 2008 (low point ) 2012 2013 2013 2013
30,000 5.1 8.6 9.5 0.9 4.4
60,000 19.8 26.2 26.6 0.4 6.8
120,000 31.6 39.1 39.3 0.2 7.7
Source: Department of Finance
Slide 6
7. The public finances are showing improvement; the underlying
deficit ex interest payments has halved since ‘09…
General Government Primary Balance, Eur bn
(ex Banking Costs)
10
5
-
-5
-10
-15
Source: Ecowin, UB, Department of Finance
-20
f
06
07
08
09
10
11
12
20
20
20
20
20
20
20
Slide 7
8. …helped by now-improving revenues…
General Government Revenue, Eur bn
Exchequer Tax Revenue, €m
50,000 70
45,000
65
40,000
up Eur1bn from '10 low
35,000 60
30,000
55
25,000
20,000 50
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012e
06
07
08
09
10
11
12
Note: 2011 figures incorporate the reclassification of health levy receipts into the Universal Social Charge. Excluding this effect,
20
20
20
20
20
20
20
tax revenues were still up in 2011, but by 0.8% y/y rather than the headline increase of 7.2%
Source: Ecowin, UB, Department of Finance
Slide 8
9. Non-interest spending is down ca 15% (Eur11 bn) from
the 2008 peak
General Government Primary Spending, Eur bn
(ex Banking Costs)
80
down Eur11bn since '08
70
60
50
40
30
20
10
-
06
07
08
09
10
11
12
20
20
20
20
20
20
20
Source: Ecowin, UB, Department of Finance, UB
Slide 9
10. Overall fiscal position ahead of EU/IMF targets for over
2 years…
EU/IMF Programme Primary Balance Targets:
Performance vs. Benchmark
0
-5
-10
-15
-20
-25
1
2
0
11
12
11
11
12
-1
-1
-1
p-
p-
c-
n-
n-
ar
ar
ec
De
Se
Se
Ju
Ju
M
M
D
IMF Target Actual
Slide 10
11. 2012 has seen a further significant improvement in
investor perceptions of the country’s creditworthiness…
% 8-Yr Govt Bond Yields
18
16
14
12
Source: Bloomberg
10
8
6
4
2
0
1
2
0
1
2
1
10
12
12
10
1
1
1
1
-1
-1
-1
1
1
n-
n-
n-
p-
p-
p-
c-
c-
c-
ar
ar
ar
Ju
Ju
Ju
Se
Se
Se
De
De
De
M
M
M
Slide 11
12. …with the EU/IMF programme providing cheap
funding for over Eur55bn of borrowing
% Govt Bond Yields vs. EU/IMF Lending Rates
18
16
14
12
10
8
6
4
2 Source: Bloomberg, NTMA
0
1
2
1
2
1
2
11
1
12
2
1
2
l-1
l-1
-1
-1
-1
1
-1
1
-1
-1
p-
p-
n-
n-
ov
ov
ar
ar
ay
ay
Ju
Ju
Se
Se
Ja
Ja
M
M
N
N
M
M
9yr yield avg yield since Jan '11 Original EU/IMF Lending Rate rate at May '12 Latest (Nov '12)
Notes: as at end Oct 12, Eur55.3bn of total available Eur67.5bn was drawn down with avg weighted loan life of 10.4 years
Slide 12
13. Even after the major effort thus far, deficit remains very large, more
needs to be done to get to deficit to 3% target by 2015
General Government Deficit as % GDP
5
0
-5
-10 3% Stability and Growth Pact Limit
-15
Deficit inclusive of Underlying
-20 banking sector costs deficit
-25
-30
Source: Ecowin, UB, Department of Finance
-35
04
05
07
08
09
10
11
f
f
f
f
06
12
13
14
15
20
20
20
20
20
20
20
20
20
20
20
20
Slide 13
14. …€5bn of further adjustment to come in ’14 and ‘15
Fiscal Consolidation Estimates and Breakdown 2014 - 2015
2014 2015 Total % of Total
Spending 2.0 1.3 3.3 65
Current 1.9 1.3 3.2 63
Capital 0.1 0 0.1 2
Tax / PRSI 1.1 0.7 1.8 35
Total 3.1 2.0 5.1 100
Source: Department of Finance
Slide 14
16. PMIs indicate Ireland’s traded sectors are outperforming the
wider euro zone, not just other ‘vulnerable countries’
Composite* PMIs: Ireland vs. Eurozone
Manufacturing PMIs: Ireland vs. IT/Gre/Sp
65
65
60 60
55 55
50
50
45
45
40
35 40
30 35
Source: Markit Source: Markit, * Manufacturing and Services, 3m avg
25
30
Ireland Italy Greece Spain
EZ Ireland
Slide 16
17. The private sector, not fiscal policy, holds the key to Irish
recovery; the latest jobs trends offer much encouragement
Breakdown of Employment, annual change
(000s)
50
0
-50
-100
-150
Source: CSO, UB estimates
-200
9
0
1
2
09
9
10
0
D 1
1
12
09
10
11
12
-0
-1
-1
-1
-1
-0
1
-1
p-
p-
p-
p-
n-
n-
n-
n-
ar
ar
ar
ar
ec
ec
ec
Se
Se
Se
Se
Ju
Ju
Ju
Ju
M
M
M
M
D
D
Private Employees Public Employees Self Emp
Slide 17
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Slide 18
19. Brian Harvey
The Wheel
Dublin, 13th December 2012
brharvey@iol.ie
19
21. Government spend
Down this year -2.3%
Overall, down -4.3% since 2008
Voluntary and community
sector down -8% to -10% each
year
21
22. First, social impact
Maintenance of basic social welfare rates, but
changes around them have cumulative effect
Welfare rates put are close to poverty line
Above for older people, below for unemployed
Poverty began to rise again 2009
This year’s changes:
Child benefit down to €130
Jobseeker benefit reduced to 6 to 9 months
Telephone & household benefits
Other smaller changes but cumulatively
important
22
23. Second, impacts on V&C sector
►Environment, Community, Local
Development
► LCDP down €6m 2013 to €48.4m
► That is -10.9%
► Overall reduction is -42%
►If it had been reduced in line with
government spending, then it would be
€81.1m (over)
►Housing down -15%, where 34% of
housing is provided by voluntary housing
23
25. Headlines (1)
►Justice & Equality
► Department up +2.8%
► Equality down -20%
►Education & Skills
► Down -0.4%
► National Education Psychological Service -2%
► FAS training for unemployed -4%
►Development aid
► Poverty & hunger reduction -3%
►Tourism, Transport & Sport
► Sports -6% (but more, due to underspend 2012)
25
26. Headlines (2)
►Arts, Heritage, Gaeltacht
► Arts, culture & film, -5% (Arts Council is half)
►Health
► Largest funder of voluntary organizations
► Main head is -2% (but includes all voluntaries)
► Other funding for HSE -1% to -2%
►Youth
► €58.3m to €52.9m in 2013, €49.9m in 2013
► Down -9.2%, -5.6%
► Most is for disadvantaged youth projects
► Counselling -12%, FRCs -5%
26
27. Social Protection funding
►Community employment €335 to €351m
►Tus €65m to €96m
►Job Bridge €54 to €81m
►Community services €45.4m to €46m
►The only good news, counter-trend.
27
28. Analysis, conclusions (1)
Level of fall in government spending is small, less
than 1% a year since economic & social crisis broke
Pattern of disproportionately reducing funding for
voluntary, community organizations unaffected
Less in health, more in community (-42% LCDP overall)
2013 has notable reductions in:
LCDP, 10.9%
Youth, -9.2%, -5.6%, at a time of 30% youth unemployment
Equality, -20%, with inequality growing
Housing, -15%, lists got longer every year since 1987
Training for unemployed, -4%, with 14% unemployment
Sport, -6%, despite known health benefits
FRCs -5%, counselling -12%. No explanation for any of these.
28
29. Analysis, conclusions (2)
Impact on spatial poverty greater than generic
poverty: targeting of disadvantaged communities
Non-core reductions for those on welfare have
cumulative effect for those near or already below
poverty line
Reduced resources for disadvantaged - and those
who work with them
Reinforces a now well-established cycle of
immizerization.
Thank you for your attention!
29