Friday, September 3, 2010

August Exchequer Returns

The Exchequer Returns for August have just been released and the official response to them is nothing short of amazing (amazingly wrong!).  The fanfares are blowing because a predicted drop of 20.7% in monthly tax revenues for August is being compared to an actual drop of “only” 15.7%.

The following is extracted from this piece which welcomes this 15.7% drop in monthly tax revenues.

The figures show that the budget is on target and economic growth is returning, Minister for Finance Brian Lenihan insisted tonight.

Mr Lenihan said that the exchequer returns were on target and showed that the budget forecasts had held up.

“It is very important in terms of the kind of commentary we have seen in recent weeks which suggests that this country is in real financial jeopardy. The financial administration of the country is on target," he said.

Mr Lenihan added that financial stability was essential for economic growth and the early signs of growth where there. “Irish growth is on the way and will continue,” he added citing today’s upgraded forecast for growth by the European Central Bank.

He also said that unemployment had now virtually peaked. “We are at the bottom of a very difficult recession but the early tentative signs of growth are there and will continue.”

This month we’ll start with a graph and easily illustrates how much rubbish is spouted above.  It’s a simple graph of cumulative monthly taxes for the past four years.

Tax Revenues to August
The stark reality is that the red line for 2010 is moving further and faster away from the green line for 2009.  Tax revenue is deteriorating and is getting worse at a faster rate.  Let’s bring out the tables.

Cumulative Tax Revenues to August
After a number of months where the decline relative to last year eased the rate of decline in August accelerated.  Here is the same data in a graph.  The red dashed line represents the Department’s 7% predicted drop in tax revenue.  The green dashed line is my predicted drop of just over 10% in tax revenue.

Annual Changes to August
If we look at the monthly revenues we see that tax revenue in August was over 15% behind the amount collected in the same month last year.

Monthly Tax Revenues to August
If we turn to the individual tax heads the picture remain as grim.  All the main tax heads are down and the only tax that is ahead of 2009 is Customs Duty which brings in the smallest revenue.

Cumulative Tax Revenues to August 1a
If we look at the monthly revenues for August we can quickly identify the cause of the €330 million drop compared to August of last year

Monthly Tax Revenues August
There's even a few black figures in this table!  However, the stand-out figure is the €322 million drop in the amount of Corporation Tax collected this August compared to August last year.  The other seven tax heads combined are down only €7 million
The Department of Finance forecast of tax revenue for August was out by 6.4% but this was only the second month when they under-forecast tax revenue.
Tax Forecasts to August
Here is the table that gives the headline figure that tax revenues are only 0.7% behind D0F forecasts.  Of course, this is a relatively meaningless comparison.

Tax Forecasts to August 1a
Although the forecast of total tax revenue is out by 0.7%.  This does not hold for the forecasts made for the individual tax heads.  This is the table the Department likes to focus on.  It is clear that the continued downturn in Income Tax receipts has not been forecast.

Cumulative Tax Forecasts to August
It is somewhat interesting to note that seven of the eight tax heads (including Income Tax) came in ahead of the monthly DoF forecasts for August.

Tax Forecasts for August
It is clear that the drop in Corporation Tax was forecast. In fact the Department predicted a much greater fall.  There was €533 million of Corporation Tax collected in August 2009.  For August 2010 the Department forecast that only €163 million would be collected (a drop of 69.4%).  In fact €211 million of Corporation Tax was paid this August (an  actual drop of 60.4%).

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