Monday, June 18, 2018

Who shifts profits to Ireland?

Eurostat’s structural business statistics give a range of measures of the business economy broken down by the controlling country of the enterprises.  Here is the Gross Operating Surplus generated in Ireland in 2015 for the countries with figures reported by Eurostat.

Ireland Business Economy by Controlling Country - Profits 2

In total companies reported around €125 billion of Gross Operating Surplus in Ireland in 2015.  Of this 90 per cent arose in companies controlled from just two countries.  These were companies “controlled by the reporting country” (i.e. Ireland) and companies controlled from the United States.  Much smaller amounts of profits are reported for companies controlled from all other countries.

Although there are problems with it we can get some insight into the profitability of companies by comparing their gross operating surplus to their personnel costs.

Ireland Business Economy by Controlling Country - Profitability 2

Again, there is one stand-out figure – that for the United States.  There are other countries which do seem to have companies in Ireland with “excess” profits (Australia, Japan, Italy and Belgium) but as shown in the first chart the amounts in question are relatively small and some of the high rates are one-offs rather than showing up consistently in the data.

Do these charts show:

  1. Profits being shifted out of large market countries such as France and Germany, etc. or
  2. Profits being shifted out of their source in the United States?

And if it is #1 why is it only US companies that seem to be able to do it?  Why don’t French or German companies shift their profits to Ireland?  Of course, the answer is that the charts actually show #2 to be key issue but that seems unlikely to get a foothold in the debate anytime soon.

Wednesday, May 9, 2018

Why is the Irish “average wage” in the OECD Taxing Wages so low?

A few weeks ago the OECD published the 2018 update of their Taxing Wages publication.  There is plenty in the report worth chewing over but one minor issue that arises is the level of the “average wage” benchmark used for Ireland.

OECD Taxing Wages Average Wage Ireland 2000-2017

It doesn’t really appear to be anything too noteworthy.  It rises fairly rapidly up to 2008 (the figures are nominal so no account is taken of inflation), drops in 2009, has been edging upwards for the past three or four years or so, and is put at €36,800 for 2017.

But what about when we look at it in a comparative context?  OK, an international comparison  isn’t as straightforward as looking at a single country through time but we can overcome some issues if we look at countries that share a common currency. 

Here are the nominal average wages used for 2016 for a group of euro-area countries.

  • Netherlands €50,120
  • Germany €48,300
  • Belgium €46,528
  • Austria €45,073
  • Finland €43,716
  • France €37,906
  • Ireland €35,430

So, we still haven’t adjusted for prices but some of the gaps here are very large.  Is the nominal average wage in Ireland 27 per cent lower than Germany and 29 per cent lower than The Netherlands?

The OECD also has an Annual Wages publication which uses aggregate data from the national accounts to work out an average wage.  As the notes say:

Average annual wages per full-time equivalent dependent employee are obtained by dividing the national-accounts-based total wage bill by the average number of employees in the total economy, which is then multiplied by the ratio of average usual weekly hours per full-time employee to average usually weekly hours for all employees.

So what does this tell us?  Here are the 2016 averages from this dataset.

  • Ireland €51,336
  • Netherlands €46,709
  • Belgium €43,097
  • Austria €41,421
  • Finland €41,209
  • Germany €38,302
  • France €36,809

Of the selected group Ireland has gone from last to first with a 44 per cent rise in the estimated annual average wage as measured using the national accounts versus that used in Taxing Wages.  For most of the other countries the difference is only a few per cent – bar Germany where the national accounts show an average that is over 20 per cent lower.  Still by far the greatest absolute difference is for Ireland.

So,what explains it?  Perhaps it is coverage.  The national accounts cover the entire economy where the Taxes Wages figure is derived from NACE sectors B to N, i.e. the business economy which excludes state-dominated sectors such as education and health. But this coverage is the same for all countries.

The answer lies in the annex of the Taxing Wages report

Table A4 shows the method used to calculate the average wage.  One piece is the type of workers covered.  There are columns which show whether supervisory or managerial workers are included.  There are 36 countries covered in Taxing Wages and 34 of them include both of these types of workers, many of which we can assume would be in the top half of the earnings distribution. 

Which countries do not have them included when the average is calculated? Turkey and Ireland.

Part-time workers are another category that get varying treatment across countries.  Some countries leave them out altogether and only include full-time employees when working out the average.  Other countries include them but do so on a full-time equivalent basis such that their earnings are included but are scaled up as if they were a full-time employee.  There are six countries who include part-time employees in the calculation but do so on the basis of their actual annual earnings as part-time workers.

In their notes the OECD say:

The worker is assumed to be full-time employed during the entire year without breaks for sickness or unemployment.  However, several countries are unable to separate and exclude part-time workers form the earnings figures (see Table A.4). Most of them report full-time equivalent wages in these cases.  In four countries (Chile, Ireland, Slovak Republic and Turkey), the wages of part-time workers can neither be excluded nor converted into full-time workers (for example, an OECD Secretariat analysis of available Eurostat earnings data for selected European countries has show that include part-time workers reduces average earnings by around 10%).

So, the Irish figures used in Taxing Wages exclude supervisory and managerial staff, and include part-time workers on an unadjusted basis. 

What would the Irish figure be if it was estimated in line with the practice for most other countries?  Figures on that basis are available from Eurostat’s Structure of Earnings Survey though it is only available every four years.  The averages (with part-time employees given on a full-time equivalent basis) for sectors B to N are given as:

  • 2002: €33,320
  • 2006: €40,761
  • 2010 : €42,111
  • 2014: €44,700

This would put Ireland pretty much in the middle of the set of countries used above. 

Would it make a difference if the 2017 average wage used for Ireland was €45,000 rather than €36,400?  It probably would.

The OECD show that a single person on the average wage in Ireland has taxes and social insurance deductions of just under 20 per cent of their gross wage.  If this calculation was done using an average of €45,000 then the deductions would be 25 per cent of gross wage. 

This is part of an infographic the OECD used to promote the publication of Taxing Wages

OECD Taxing Wages Infographic

The OECD average is given as 25.5 per cent for 2017 and Ireland is included in the group of “low-tax” countries with tax rates for a single worker on the average wage of less than 20 per cent.  If an average wage was used that better reflected the actual outcomes in Ireland, in line with the methods used for other countries, then Ireland would be pretty much bang on the OECD average and would not be flagged (literally) on such infographics. 

Such a change would probably have limited impact on the estimated progressiveness of the Irish income tax system but it would change the range of values that are currently included in the analysis.  The OECD analysis extends up to earners on 167 per cent of the average wage.  This is around €60,000 with the average currently used but would be €75,000 if that was increased to the value proposed here.

If €45,000 was used for the Irish average wage (which the available data would support) then Ireland would not be down towards the bottom of charts like this.  This calculator puts the tax rate on a single person earning €45,000 in 2017 at 25 per cent.

OECD Taxing Wages Tax Rate on Average Wage

If a more realistic average wage was used, Ireland would pretty much be the same as the OECD average (and rise maybe ten places higher) in the above chart.  So why is such an unrepresentative average wage used for Ireland in this important report?

Why don’t the household sector accounts make sense?

Ireland’s national accounts have their foibles but they don’t seem to be limited to the corporate (MNCs) or financial (IFSC) sectors.  Their are some quirks in the household sector as well though maybe the heading above is a bit of an exaggeration.  The household accounts do make sense just maybe not in the way that we would expect.

The issue can be seen by looking at two outcomes:

  1. The flow of net lending or borrowing of the household sector.  This is essentially the outcome after all current and capital flows (income, expenditure, taxes and transfers) have been accounted for and gives a surplus available for use (net lending) or a deficit to be financed (net borrowing).
  2. The stock of loan liabilities of the household sector.  This is simply the sum of all loans (mortgages, car loans, short-term loans etc.) of the household sector taken at a point in time usually the year-end.

First the annual flow of net lending/net borrowing of the household sector:

Household Sector Net Lending

And the stock of loan liabilities:

Household Sector Loan Liabilities

OK, at first glance both of these are pretty much what would expect.  The household sector went deep into net borrowing by 2007 with loan liabilities rising steeply. The borrowing stopped abruptly in 2009 and the household sector became a net lender and this deleveraging is evident in the drop in the amount of loan liabilities from just north of €200 billion at the end of 2008 to around €140 billion at the of 2016.

So what’s the problem?

This issue is the difference between the amount of resources that the current and capital accounts tell us is available for net lending (such as repaying loans) and the drop in loan liabilities.  Here are the sum of the flows (net lending) versus the change in the stocks (loan liabilities) since 2008:

Household Sector Net Lending v Loan Liabilities

These don’t have to be the same but we would like to be able to explain the difference between them.  From 2009 to 2016 the loan liabilities of the household sector were reduced by around €60 billion.  Over the same period the household sector had cumulative net lending of around €15 billion.  The household sector has significantly reduced its loan liabilities but the resources to do so does not seem to have come from income.

And, as the first chart above shows, for the past few years we can see that the household sector has had a net lending outcome of close to zero (and even been a small net borrower) while at the same time continuing to reduce its stock of loan liabilities by around €8 billion a year. 

Where is the money coming from?

There are a number of ways the loan liabilities of the household sector can be reduced.  These include:

  • making repayments from income
  • selling assets (real or financial) to finance repayments
  • revaluations, write-offs or other stock adjustments.

Can these three factors explain the €60 billion reduction in loan liabilities that has occurred since 2008?  Even if all the available net lending generated from the first was devoted to repaying loans that would still leave €45 billion to be explained by the latter two.

We can get some insight into the contribution of revaluations and write-offs is we compare the flow of loan transactions (net drawdowns versus repayments) to the stock of liabilities.   Again we will take the end of 2008 as the starting point.

Household Sector Loan Transactions v Loan Liabilities

In the five years to the end of 2013 the €34 billion reduction in loan liabilities is closely matched by the minus €33 billion sum of loan transaction, i.e. the reduction was almost entirely achieved through repayments.  Since 2013 though, the reduction in the stock of household loan liabilities has exceeded the amount that can be attributed to loan transactions.  The gap reflects revaluations and write-offs with a €12 billion difference showing in the chart above by 2016.

But we still don’t know where the money came for the loan transactions shown above.  All told they are responsible for €47 billion of the €60 billion reduction in household loan liabilities since 2008.  If every cent of net lending the households generated from their income this could only provide €15 billion over the same period.  Where did the other €32 billion come from?

Maybe it came from deposits. This could be borrowers themselves using deposits. It would also show if an asset (such as a house) was sold with the seller using the proceeds to repay a loan while the purchaser funded all or a large part of the transaction with deposits.  For the household sector in aggregate give rise to a reduction in loans and a reduction in deposits. 

But household deposits have actually increased over the period, from €120 billion at the end of 2008 to €135 billion at the end of 2016.  Of course, this only adds to the mystery.  If, as we would expect, some of the household net lending went to increase deposits then even less would have been available for loan reductions so the gap to be explained is even larger than €32 billion.

How do the accounts explain the gap?

The financial accounts do make sense, i.e. add up, so we can see where it is implied the money came from. And this is the sale of assets – the second of the three possibilities listed above. shares.  What did the household sector sell? The answer apparently is unlisted shares, that is shares in private or family companies. 

However looking at the balance sheet doesn’t reveal that this is the place to look.  Here is the stock of unlisted shares held by the household sector.

Household Sector Unlisted Shares

There has been some reduction since 2009 but only in the order of a couple of a billion.  The stock position was €39.5 billion at the start of 2009 and had declined to €32.75 billion at the end of 2016.  It is not clear from this that the household sector has generated substantial resources from the sale of unlisted shares to fund the level of debt reduction we have seen.  But if we look at the transactions and revaluations behind these end-of-year positions this is what we see since 2009.

Household Sector Unlisted Shares Transactions Table

The stock position might have declined by only €7 billion or so between 2009 and 2016 but the cumulative impact of transactions was almost minus €53 billion, i.e. the household sector had net sales of unlisted shares of €53 billion!  The reason this had such a small impact on the stock position is that there were offsetting positive revaluations and other adjustments of plus €46 billion.  These are big numbers.

But wouldn’t we see some evidence of these transactions elsewhere. For example, selling tens of billions of assets would probably have some Capital Gains Tax implications but CGT receipts for the past few years have been in the order of hundreds of millions and, of course, reflect realised gains on a broad range of assets not just shares in private companies.  There is no evidence of tens of billions worth of transactions in unlisted shares. 

And it is interesting to note when they were added to the accounts.  This table shows the figures as published in different vintages of the Financial Accounts going back to 2012.

Household Sector Vintages of Unlisted Shares Transactions Table

In the 2013 release, the reported transactions for the years 2009 to 2012 summed to –€7.4 billion.  The latest estimates for those years sum to –€26.3 billion.  And it can be seen that the changes have been made in relatively neat amounts.  The 2009 figure has been revised by €5,000 million compared to what was in the accounts originally.  Similarly even figures can be seen for the other changes.

The absurdity of the reported Irish outcomes can be seen if we look at transactions in unlisted shares by the household sectors across the EU15.

EU15 Household Sector Unlisted Shares Transactions Table

No country comes close to having the scale of household sector transactions in unlisted shares to that of Ireland.  The median sum for the period 2009 to 2016 across the EU15 is +0.3 percentage points of GDP.  As can be see the outcome for Ireland is –26.6 percentage points of GDP (and that’s even with an inappropriately large denominator).

So Ireland’s household sector accounts do make sense. The net lending/borrowing shown in the Capital Account is a close match for the net financial transactions shown in the Financial Account. 

Household Sector Net Outcomes CSO 2002-2016

The discrepancy between net financial transactions (B.9F) and net lending/net borrowing (B.9)this is included by Eurostat (as variable B.9FX9) in their sector accounts.  But the relative consistency shown in the chart above, particularly since 2010, is only achieved through the inclusion of massive transactions in unlisted shares which do not make sense. 

As we went through before the CSO and Central Bank views of the financial transactions that are very different.  The Central Bank do not have have tens of billions of net sales transactions in unlisted shares.

So, where do we stand?

Here are the net lending/net borrowing outcomes for the household sectors of the EU15 in nominal per capita terms since 1995.

EU15 ISA Household Sector Net Lending Per Capita

There isn’t much of a surprise in seeing Ireland as the stand-out series up to 2006 and 2007.  But after getting back into the middle of the pack by 2009 we have dropped down through the ranks again in recent years.

And if we go back to the Current Account we can get the gross savings rate which is the share of gross disposable income (with an adjustment for pension funds) that is not used for consumption expenditure.

EU15 ISA Household Sector Gross Davings Rate

Just as with the outcome for net lending/net borrowing which comes after capital spending has been accounted for the gross savings rates show the recent outturns for Ireland to be “low”.

Is any of this important?

It is if trying to gauge the impact on the economy of future changes in the household sector is important.  A "deleveraging hypothesis" would suggest that the household sector has been repaying significant amounts of debt built up during the credit boom and that as these debts are repaid the household sector will have more resources available for consumption and investment as elevated savings to make debt repayments will no longer be required. 

This hypothesis is in line with the huge reduction in debt liabilities we have seen on the household sector's financial balance sheet since 2009.  However, the capital account shows that the household sector is already a net borrower and that there is limited scope to increase consumption and capital formation from existing resources.  This would suggest a stable path for the gross savings ratio over the next few years and forecasts of consumption growth in line with income growth would probably be appropriate. 

But what if household consumption expenditure and/or capital formation grows faster than household income? Should we be concerned particularly if the national accounts indicate that this could only be possible through increased borrowing? 

All this feeds through to expected changes in the current account of the Balance of Payments and informs one's view of whether the level of economic activity is sustainable or not. If activity is dependent on being financed by deficits that activity requires the lending and/or borrowing behavior to continue which, history tells us, is something that can change very quickly.

If the increased activity is being funded through a reduction in gross savings, net lending and/or current account surpluses then reasons for concern should be limited but if it is being funded by increased borrowing and/or current account deficits then at a minimum it should at least trigger an amber warning which may lead to concern being warranted. 

We don't have visible sight of the underlying current account (because of an issue with R&D services imports) and until we do the household gross savings rate and the outcome for net lending/net borrowing take up increased significance.  These would suggest that the financial capacity of the household sector is “tight” and that any rapid expansion should be a cause for concern.

So what to do?

Taking the gross saving rate and net borrowing numbers at face value offers some support for an “overheating hypothesis” and whatever policy prescriptions would follow from that diagnosis.  As the net lending/borrowing chart (the first chart above) shows it is a long way from the dizzying days of 2004 to 2007 but the Irish economy is one in which conditions can change rapidly.  Housing can be a driver of such swings.

But should we take the numbers at face value?  We think there is an underlying current account surplus in the Balance of Payments and that this possibly increased in 2017.   We know that the underlying net international investment position of the economy has been rapidly improving.  We know that the financial position of the household sector has improved and that debt reduction has made a significant contribution to that.  These sit counter to an “overheating hypothesis”.

So maybe just have contradictory signals and none can be taken as evidence of anything. But shouldn’t the pieces of the jigsaw fit together? Shouldn’t we have a coherent story?  In this instance the contradictory signals are in the current, capital and financial accounts of the household sector.

Putting together the national accounts requires a certain amount of estimation and interpolation. Hard evidence will only get you so far and jumps that join the dots are sometimes required.  But putting in tens of billions of sales transactions does not seem credible.

When ranking the hard evidence used for the household sector it is likely that the financial balance sheet would be towards the top of the reliability stakes.  Getting a handle on the loan and deposit positions of the household sector is possible using data from a fairly small number of financial institutions and while there might be some uncertainty around the levels, the direction and magnitude of changes should have greater confidence associated with them. 

These changes point to a €60 billion reduction in household loan liabilities since 2009 and a €15 billion increase in household deposits over the same period.  These figures might be wrong but to be out by tens of billions seems unlikely.

If these balance-sheet changes are considered reliable shouldn’t the rest of the accounts be consistent with them – and in a manner that makes more sense than using absurd transactions in unlisted shares?  It is possible the inconsistency is due to unreported income, in the informal or black economy, not showing up in the current account but one would imagine there is plenty of consumption spending that is not picked up either.

If the accounts are to be more consistent it would require income to be higher, spending to the lower, or some combination of the two.  However it was achieved, the outcome would be a higher gross savings rate and an outcome for net lending more in line with the observed deleveraging.

Of course we actually had that this time last year but such coherence was revised away. Can we have it back please?

Thursday, April 19, 2018

Aggregate improvement in the household sector motors along

Last week the CSO published the Q4 2017 update of the Institutional Sector Accounts (ISAs) which give us a preliminary insight into the full-year outcomes by sector.  The ISAs follow from the Q4 Quarterly National Accounts (QNAs) a few weeks ago.  For a variety of reasons the QNAs get lots of coverage and the ISAs close to none.  There is far more information, and better information, in the ISAs. 

Here we will look at the household sector. The snapshot shows the nature of the general improvement.

Household Sector Income Expenditure and Net Lending

Let’s looks at some of the detail.  First the current account:

Household Sector Current Account 2013-2017

We could go through it but it is a picture of general improvement.  In the middle we see that Gross National Income, largely the sum of self-employed, employee and property income, is estimated to have increased by six per cent in 2017.  Once we account for taxes and transfers we get an annual increase in Gross Disposable Income of 5.1 per cent. 

With final consumption expenditure estimated to have risen by 3.1 per cent, the current account ends up an increase in the Gross Savings of the household sector; from 7.0 per cent of GDI in 2016 to 8.8 per cent of GDI in 2017.  This is still likely to leave Ireland towards the bottom of the EU15 ranking in 2017 as was the case in 2016.  [The legend in the chart is ranked by the 2016 outcomes.]

EU15 ISA Household Sector Gross Davings Rate

So what can we do with these Gross Savings from the current account?  Disposable income that hasn’t been used for consumption can either be lent (put into financial assets such as deposits or equity and/or used to reduce financial liabilities like loans) or used for capital formation (new houses, improvements/renovations of existing houses etc.)

Obviously, here we are looking at aggregate outcomes, so the outcome for individual households will vary. A household that has borrowed for consumption expenditure can further borrow for capital formation.  The aggregate descriptions refer to the outcome for the sector as a whole.

So what happens when we put €8.8 billion of gross savings into the capital account?

Household Sector Capital Accounts 2013-2017

For 2017, it is estimated that the household sector undertook €9.2 billion of capital formation.  So all the gross savings from the current account was spent (or at least that was the aggregate outcome – some households were borrowing while others were savings) and after capital taxes and transfers we end up with a net borrowing outcome of around €200 million. 

In 2017, between current expenditure and capital formation, the Irish household sector pretty much spent all of its disposable income – and this has been the case for every year since 2014.

All in all, the growth rates for 2017 look very positive.  All sources of income are growing rapidly, current spending is growing but not as quickly, while capital spending is growing a bit faster.  All in all it paints a very positive picture.

One concern is that the Irish household sector has been a net borrower for the past three years.  The chart below shows household sector net lending/net borrowing for the EU15 in per capita terms.

EU15 ISA Household Sector Net Lending Per Capita

It is not the crazy days of 2006/07 but after moving into the middle of the EU15 pack from 2009 to 2012, we have been drifting downwards since.

But this chart clashes with view that the Irish household sector is deleveraging.  In fact, as the last line in the previous table shows the Irish household sector has been spending more than it is earning since 2014.  Can this be true?

The Quarterly Financial Accounts of the Central Bank show that the loan liabilities of the household sector were €167.7 billion at the end of 2013.  The latest figure is for Q3 2017 which shows that loan liabilities had been reduced to €141.8 billion.

That the Irish household sector is reducing its loan liabilities is not a surprise.  But how have loan liabilities reduced by €16 billion over the past three years or so when expenditure, current and capital, has exceeded disposable income by €2 billion.  And it is also worth noting the currency and deposit assets have increased by €12 billion over the same period.

So where did the money come from to reduce loans by €16 billion and increase deposits by €12 billion if spending exceeded income by €2 billion?  That is a €30 billion gap in just three years and is something we may return to in a subsequent post.

For now we will focus on the growth rates rather than the levels.  The growth rates are motoring along nicely. 

Household Sector Income Growth

Nominal household income grew by between five and six per cent in 2017. That is pretty strong. It would be much better to focus on that than chattering about how much of the GDP growth shown in the QNAs was due to iPhones (plus I suspect the very specific claim made by the IMF is wrong).

Wednesday, April 4, 2018

Revisions (introduced and expected) to the NFC sector in the national accounts

When the 2016 Institutional Sector Accounts were published in November the CSO provided a breakdown of the non-financial corporate sector in the “top 50 foreign-owned NFCs” and “other NFCs”.  We went through the accounts for each here.  A few weeks ago the CSO made some minor revisions to the figures and it is worth giving them a little look. Click to enlarge.

NFC Sector Current Account 2013-2016 Split

The CSO have revised down the property income paid by the large, foreign-owned NFCs which has the effect of increasing the aggregates as the revisions work down the table.  The revisions summed to around €8 billion across the four years for which the split of the NFC sector is currently available.  A derived measure such as “Net Savings” which here is Gross Savings less consumption of fixed capital (i.e. depreciation) is now essentially zero.  As companies so not undertake final consumption we could equivalently say that the Net Disposable Income of the large foreign-owned companies is zero.

We would not expect foreign companies to be contributing anything to the net savings of the economy.  By the time you get down to Gross Disposable Income the only thing left to cover is depreciation.  There should be no excess as any residual should be counted as a property income outflow (such as retained earnings accruing to non-residents). 

[The numbers in the panel of the table above for the Net Savings of the large, foreign-owned NFCs are close to but not exactly zero though these values do seem to be related to the net of other transfers paid and received further up the table.  In the greater scale of things the numbers are close enough to zero to make no difference.]

Of course, the aggregate measures that get most of the attention, GDP, GNP, GNI etc., are in gross terms so the impact of depreciation is important.  Measures of national income and growth in net terms are very useful and should be more widely used but differences, inconsistencies and robustness concerns in how depreciation is estimated across countries means that the primary focus remains on the gross measures.

The changes don’t hugely affect what was said in the previous post and a fuller discussion of what the breakdown does and does not provide is available there.  Here we will just look at a couple of additional points.

Firstly, on the tax paid by foreign-owned companies.  We usually focus on Corporation Tax and the table above shows that the 50 companies in this category paid around €2.5 billion of Corporation Tax in 2015 and 2016.  A bit further up the table though we have “other taxes on production paid”.  For 2015 and 2016 these came to around €900 million for this group which is a significant contribution [it can also be seen that “subsidies on production received” were zero).

There are a number of taxes that make up this categories and for the foreign-owned companies involved it is likely that the relevant ones are:

  • Commercial Rates
  • Motor Tax
  • National Training Fund Levy

Second, when looking at the contribution of foreign-owned companies to national income we would like to know what they spent on:

  • goods and services from Irish suppliers (i.e. non-imported intermediate consumption)
  • compensation of employees to the direct staff
  • taxes, both taxes on income and taxes on production
  • capital investment, particular on tangible goods

The table above gives us the middle two of these for the top 50 foreign-owned NFCs, €4.3 billion for compensation of employees and €3.4 billion for taxes.  We don’t know how much of their intermediate consumption comes from Irish suppliers and the investment figures recently have been skewed by volatile investment in intangibles but it would not be a surprise is these two figures were around €4 billion as well. 

With a bit of juggling this could be seen to be in line with finding from the Survey of Business Impact now carried out by the Department of Business, Enterprise and Innovation though the non-imported component of intermediate consumption of one MNE could simply be the imported by an Irish supplier (or another MNE for that matter) and it will certainly be the case that a share of the investment in tangible goods will be on imported equipment.

Turning to the second panel in the table doesn’t offer much as it remains a bit of an impenetrable gloop. It obviously contains all domestic firms but also contains those foreign-owned NFCs not included in the “top 50”.  The CSO are working on a more complete foreign/domestic split which will help.

We would expect the profits of foreign-owned companies to be stripped out via property income paid so the Gross National Income and Gross Disposable Income shown in this panel should give us a good idea of the earnings of Irish companies.  That does not appear to be the case as the growth rates are much too rapid.  The nominal growth rates of GNI for other NFCs for 2014 to 2016 were 19 per cent, 11 per cent and 23 per cent.  The growth rates of the Gross Disposable Income of this group were similar.

There might be something going on with depreciation.  From 2013 to 2016 the depreciation associated with aircraft for leasing increased from €2.6 billion to €5.1 billion. However, even the derived “Net Savings” measure shown at the bottom of the table has average annual growth rates of 20 per cent over the three years.  This measure excludes all depreciation and should exclude  the profits of foreign-owned companies.  That does not appear to be the case.

It is likely that the odd outcomes here are, at least in part, linked to the treatment of imported R&D services expenditure (which was raised in this recent post on the Balance of Payments).  It is likely that a large share of the imported R&D services relates to “cost-sharing payments” made by the Irish subsidiaries of US MNCs are part of the licensing arrangement for the use of intellectual property outside the US. The Irish subsidiary contributes a share of the company’s overall R&D expense relative to the size of the market it covers.

One outcome of a more consistent treatment of this R&D services imports as capital formation could be an upward revision to property income paid by foreign-owned companies in this group.  It also seems likely that the full impact of any changes will be seen in the “other NFCs” group given the consistency that now appears in the revised figures for the “top 50” group (i.e. the near zero figures for “Net Savings").

The stability in the figures from 2013 to 2016 for property income paid for the other NFC group would suggest that the profitability of foreign-owned firms in this group was also relatively stable as dividends paid and retained earnings accruing to non-residents will make a large part of this figure. 

This does not seem likely.  The Corporation Tax paid by this group rose 75 per cent between 2013 and 2016 and if the bulk of that came from Irish firms it would imply a remarkable rise in profits.  For example, if Irish firms paid half the Corporation Tax of this group in 2013 then the resultant rise in Corporation Tax would imply the profits of the Irish firms rose 150 per cent (as the amount of tax would need to rise from €1 billion to €2.5 billion).

[And it is also worth noting that the figures for property income received in the right-panel will contain the retained earnings of redomiciled PLCs which is another wrinkle to be ironed out.]

There is a recovery but a 150 per cent rise in the profits of Irish firms is highly implausible.  This suggests the figures in the right-hand panel above are, like the Balance of Payments, subject to revision.  The revision will likely see the property income paid (outbound profits) revised up.  This in turn will see Gross National Income, Gross Disposable Income and “Net Savings” revised down.  The scale of such revisions are difficult to assess but imports of R&D services are significant and have been growing as the table here shows.

Imports of Rand D Services

At present in the accounts investment spending on R&D services carried out elsewhere, i.e. imported, is counted as coming from “Irish” income.  This is because the Balance of Payments are not yet fully aligned with BPM6 and such spending is still treated as intermediate consumption for Balance of Payments purposes rather than capital formation.  When the updated approach is applied by EU countries then the money spent on R&D services by foreign-owned firms will be first counted as a profit outflow in the current account and then re-introduced as an investment inflow in the capital account.  As discussed previously this increase in the outflows of profits should reduced the Balance of Payments current account and will also likely reduce Gross National Income.

There will be a few moving parts.  It will depend on how much of the imports of R&D services shown above was undertaken by foreign-owned firms (likely a lot) and the depreciation of any assets that arise from the investment will have an impact as it is profit after depreciation that is counted as an outflow.  Still, given the numbers above, we are probably looking a some significant changes.

These changes will probably work their way through to economy-wide measures such as the new GNI*.  When this was first published the recent growth rates were queried by some as being “too hot”.  If the changes mooted here work through as expected those growth rates could be revised down – with a downward revisions of the levels also possible which would impact ratios which use GNI* as a denominator.  Given the nature of Ireland’s national accounts there could be revisions across a number of areas (the consumption conundrum?) so it’s best to wait to see what the outcome is first but it does give something to look out for.

Tuesday, April 3, 2018

The 2017 Balance of Payments

A few weeks ago the CSO published the 2017 estimates for the Current Account of Ireland’s Balance of Payments.  It got no attention – deservedly so.

Balance of Payments Current Account Annual

Up to recent years most of the impact of MNCs on Ireland’s Current Account largely netted out.  This wasn’t the case for redomiciled PLCs and their retained earning have been flattering the current account since these corporate relocations first had an impact in it around a decade ago.  The impact of aircraft leasing has been growing over the same period and since 2015 the acquisition and depreciation of intangible assets has been source of the recent major volatility in the data.

As we have been tracking there also seems to be an issue about the treatment of expenditure on R&D services in the Balance of Payments.  Although changes in both national accounting methodology (ESA2010) and balance of payments methodology (BPM6) now mean that R&D spending is considered investment rather than intermediate consumption, implementation delays across the EU mean the spending on R&D services is still treated as intermediate consumption for balance of payments purposes.  This means that the amount of outbound profit is lower than it otherwise might be if such expenditure was treated as investment (i.e. the use of reinvested profits) rather than a cost (i.e. something that reduces profits).

The CSO publish a modified Current Account, CA*, that now takes account of all of these issues except that relating to R&D services.  This has yet to be updated for 2017 so the available figures only go as far as 2016.

Balance of Payments Modified Current Account Annual

This is better but the improvements in recent years seem a little hot with a surplus of €13 billion reported for 2016.  Some of the heat may be taken out of this if the treatment of spending on R&D spending is updated.  This isn’t a Irish-specific modification per se but will see the Irish estimates move more in line with the approach set out in the updated methodology. 

We can try to assess the possible impact this will have by using the figures for R&D services imports that can be derived from the various categories of investment now provided by the CSO in the quarterly national accounts.  At present the spending on imported R&D services of MNCs is treated as coming from “Irish” income. 

It would be better if this were regarded as “foreign” income and thus treated as an outflow of retained earnings in the current account and counted as inflow of direct investment in the capital account.  The net effect of this on the overall accounts will be zero but the changed treatment will better reflect the ownership of the income used to fund the R&D services investment spending.  Thus there will be higher profit outflows in the current account and higher investment inflows in the capital account. 

Balance of Payments Underlying Current Account Annual

This is possibly what the modified current account, CA*, will look like in due course and seems to provide a narrative that fits with the overall story of the Irish economy over the past 15 years or so.  It still doesn’t go to 2017 as we have details on very few of the adjustments that are necessary but it would not be a surprise if the improvements shown for recent years continued.

Although there are a huge number of moving parts with large offsetting flows here are some factors which may have helped achieve that improvement.

1) The amount of interest payable on public debt to non-residents has been falling since 2014.  Figures for 2017 haven’t been released yet but that downward trend is likely to have continued.

GG Debt Interest Payable Outside the State Nominal

2) Corporation Tax receipts have surged in recent years and around 80 per cent of Irish Corporation Tax paid by foreign-owned companies.  This increases the amount MNCs are contributing to Ireland’s national income and boosts the current account.

Corporation Tax Receipts 2003-2017

3) On the domestic side food exports have performed well though a large part of this is due to price effects rather than volume increases.  Ireland’s balance of trade in food reached €4 billion in 2017

Balance of Trade in Food

And a large part of the improvement in 2017 was driven by developments in dairy with the higher price of milk seen in 2017 adding significantly to incomes.

Balance of Trade in Dairy Products

4) Revenues from international transport are counted as an export for the country the operator is resident in.  Unsurprisingly, Ireland runs a large surplus for transport services with most of this being international air transport around the EU (though imports in other categories will obviously reduce the overall impact on the current account).

Balance of Trade in Transport Services

5) And finally here’s one that had been helping up to 2015 (or at least making a less negative contribution) but since then spending by Irish residents on tourism services abroad (mainly accommodation and food services) has been growing at much the same rate as such spending by non-residents in Ireland.

Balance of Trade in Tourism Services

Tuesday, March 27, 2018

What is going on with GNP?

The issues with Ireland’s national accounts have gotten a good airing over the past two years or so.  Since the publication of the 26 per cent growth rate in July 2016 one that has been surprising is where some of the well-known (and not so well-known) distortions show up. 

A lot of attention has focused on GDP but apart from an extraordinary quarterly growth rate in Q1 2015 the following chart isn’t that noteworthy.  There has been a bit of volatility since late 2016 but it doesn’t seem that much different to what is showing for 1998/99.

QNA GDP Quarterly Growth Rate 1997-2017

The Q1 2015 spike clearly points to concerns about the level but that one quarterly growth rate apart most of the other outturns are within the realm of plausibility.  But what about the quarterly growth rates of GNP? GNP is what is supposed to be left after the profits of MNCs have been counted as an outflow.

QNA GNP Quarterly Growth Rate 1997-2017

This obviously shows a good deal of volatility but up the middle of 2016 it is not that outlandish.  Since then though the quarterly growth rates of GNP have been all over the place.  The last five observations are:

  • Q4 2016: +10.3%
  • Q1 2017: –6.4%
  • Q2 2017: –3.7%
  • Q3 2017: +12.3%
  • Q4 2017: +6.3%

As we commented here we have had the highest and lowest quarterly GNP growth rates in quick succession.

We might expect the relative volatility in growth rates to be the other way around: that if MNCs are causing GDP to jump around these would wash out through net factor payments and that GNP would be the relatively stable one.  The fact that MNC profits generated in Ireland are counted as a factor outflow in the period in which they are earned.  So an MNC-driven spike in GDP should be matched by an offsetting increase in factor outflows.

This is what we get if we look at the quarterly change in nominal GDP from the national accounts and the quarterly change in direct investment income on equity from the balance of payments.

Changes in GDP versus Profit Outflows

The surprising thing is how string the relationship is in 2015 and how weak it is recently.  The spike in GDP in Q1 2015 was accompanied by a spike in profit outflows. This is a bit surprising given the expected relationship between the 2015 GDP increase and depreciation.  The changes in GDP are “gross”,  i.e. before depreciation, whereas the profit outflows are “net”, i.e. after depreciation (and tax of course!).  Anyway, as GDP oscillated through 2015 the change in profit outflows tracked the changed in nominal GDP.  This continued through to the middle of 2016.

Since the middle of 2016 the changes to profit outflows have been relatively modest. The quarterly outflow was €13.1 billion in Q3 2016 and had reason fairly steadily and was put at €16.2 billion in Q4 2017. 

Over the same period GDP has been much more volatile, either rising by more (as was the case for most quarters) or falling by more (as was the case for Q1 2017).  It is the gaps between the lines in the chart above (and the changes in their signs) that have contributed to the recent volatility of GNP.

Value added has bounced around a bit over the past year and a half.  The relative stability of profit outflows means these changes in value added are being reflected in Ireland’s national income (or least are not been attributed to non-residents).

But why is this? What factors are there that can cause value added to bounce around yet not have this reflected in net profit outflows?  It could be that depreciation (of aircraft or intangibles) is playing a role but depreciation itself should be relatively stable (unless assets enter or leave the capital stock). 

If we had quarterly GNI* data we might be able to throw some light on this as,among other things, that measure is adjusted for the depreciation of aircraft and intangibles.  But until we get that we are left with the question, “what is going on with GNP?”, and even then we mightn’t be able to answer it.

Finally, just to show that outflows of direct investment income on equity in the balance of payments are the key constituent of net factor outflows in the national accounts this shows the two of them since the start of 2012:

Net Factor Income Outflows

Thursday, March 22, 2018

The Consumption Conundrum

Ireland’s national accounts get a bad rap but amidst all the distortions one would think that personal consumption expenditure on goods and services (the “C” of C + I + G + (X – M)) would be a distortion-free zone.  Of course, in relative terms, the consumption component of aggregate demand is as oasis of calm but there are a few wrinkles worth exploring.

By almost all metrics the Irish economy is motoring along nicely.  Employment is growing rapidly (+3.1% in Q4 2017), full-time employment is growing even faster (+5.4%) average weekly employees earnings are rising (+2.5% in Q4), agricultural incomes boomed (+35.2% in 2017) and though we have seen some modest income tax changes the PAYE and total USC component of Income Tax was up 8.6% in 2017.  And the population is growing (+1.1% in the year to April 2017).

But is this being translated into consumption growth?  Here are the year-on-year growth rates of personal consumption expenditure from the Quarterly National Accounts with the Q4 2017 update provided last week.

QNA Consumption Year on Year Real Growth 2011-2017

The improvement from 2011 to the middle of 2016 is probably close to what one would expect.  Growth rates returned to positive territory and then continued to edge upwards.  But the growth rate slumps from the middle of 2016 and has hovered around two per cent for the past 18 months or so.  Such sluggish growth does seem to fit with the strength seen across other indicators (a point made recently here).

We do have indicators that point to more rapid growth in consumption. At the end of 2017 the Retail Sales Index was showing volume growth of more than six per cent (excluding the volatile motor trades).

Retail Sales Index Dec 17 Growth

The index does show a slowdown in growth (but from mid-2015) rather then (mid-2016) but only briefly fell to three per cent and has been moving upwards for the past 18 months or so.

So why isn’t this being reflected in the growth of consumption in the national accounts?  One reason why the rates are different is because the measures are different.  Retail sales are only one element of consumption and exclude almost all services consumption.

The largest item in consumption is housing services.  Housing accommodation makes up one-fifth of the national accounts measure of consumption for Ireland (in nominal terms it was €17 billion out of €87 billion in 2017). 

For tenants, the amount of money paid on rent represents their spending on housing (or at least on the accommodation part).  But about 70 per cent of Irish households don’t make a regular payment for their housing – they are owner-occupiers.  They may make mortgage payments but that is a combination of a loan repayment (saving) and an interest payment for a different service – credit. For these households an “imputed” rent is calculated as if the owner was renting from themselves. 

This “imputed rent” is also counted as household income but as it is matched by imputed expenditure the net effect is zero.   Of the €17 billion of rent in consumption in 2017, €4 billion was actual rent paid by tenants and €13 billion was the imputed rent of owner-occupiers.

Regardless of the ins and outs and it should be little surprise to see that our consumption of housing has been pretty static recently. 

Housing Consumption 2004-2016

It is hard for the consumption of housing to increase when the stock of housing available for consumption is barely increasing.  So, even if other the other components of consumption are growing strongly (as the retail sales index suggests) the overall growth rate of consumption will be dragged down because the largest component (housing) is not growing at all.

But that doesn’t explain the fall off in growth seen in 2016.  We don’t get a quarterly breakdown of the components of consumption so we can only look at annual data.  In annual terms the real growth of real consumption has gone from 4.4 per cent in 2015 to 3.3 per cent in 2016 to 1.9 per cent in 2017.  Housing may be dragging the overall rates down but it is not causing them to fall.

One culprit might be insurance.

Insurance Consumption 2004-2016

Whoa!  This shows a 80 per cent fall from 2005 to 2012 and then a 200 per cent rebound up to 2014 and declines since.  Insurance isn’t a huge component of consumption (the nominal amounts are fairly close to the constant (2010) price amounts shown in the chart) but it has been volatile in recent years.

The volatility may be down to how insurance is included in consumption.  There are a number of moving parts but in rough terms it is net cost to households, i.e. Premium + Supplements – Claims.  Part of the reason for the rapid increase since 2012 shown above was a fall in claims.  They were €9.7 billion in 20112 and had fallen to €8.7 billion by 2015.

So the consumption of insurance rose rapidly from 2012 but not necessarily because households were spending more on insurance premiums but because they were getting less back in claims.  And this may have reversed in recent years so higher claims reducing the consumption of insurance. 

As stated insurance is a relatively small component of consumption but it may be partially to blame when it comes to the growth of consumption not matching our expectations based on other indicators.  And the detailed data only yet go up to the 2016.  We will learn more when we see the 2017 figures later in the year. 

The growth rates of consumption for items such as food, clothing and furniture did slow markedly in 2016 compared to what they were in 2015 but we’ll wait until the updated (and possibly revised) figures up to 2017 are published before establishing whether this is a pattern.  There is something funny going on with the volume figures for hospital services in personal consumption expenditure but it probably doesn’t add much to our narrative here though it may be a reason for some revisions.

The growth of consumption is lower than we might expect but, in looking at housing and insurance at least, this seems likely to be due to how consumption is measured for national accounts purposes rather than anything untoward in household spending patterns.  The retail sales index is probably better aligned with the money coming out of people’s pockets and the growth of that continues to tick up. 

Tuesday, February 20, 2018

PDH mortgages held by unregulated loan owners

Unregulated loan owners have been buying distressed mortgage loans over the past number of years.  Some figures on the numbers and arrears position of mortgage accounts held by non-bank entities (regulated non-bank retail credit firms and unregulated loan owners) have been included in the Central Bank’s mortgage arrears statistics since the end of 2013 and the level of detail provided has improved periodically since then. 

The regulated non-bank retail credit firms includes entities such as Dilosk, Haven, Pepper, Springboard, Start and Stepstone.  The unregulated loan owners are the “vultures”.

Initially, aggregate figures for all non-bank lenders that combined primary dwelling house (PDH) and buy-to-let (BTL) mortgages were provided.  At the start of 2016, separate figures for PDH and BTL accounts were provided and from the second quarter of 2016 these were further broken down by non-bank retail credit firms and unregulated loan owners. 

The table shows the progression of the breakdowns provided and the detail focuses on those PDH mortgages held by unregulated loan owners.

Mortgage Accounts with Non Bank Lenders

We can see that the total number of mortgages (PDH + BTL) held by non-bank entities rose sharply during early 2014. The number reached 47,000 by the end of the year and has stayed pretty close to that level ever since.

The number of PDH accounts held by non-bank lenders was first provided at the start of 2016 and the figure has remained close to the initial value of 38,000.  From Q2 2016 we have been told the number of PDH accounts held by unregulated loan owners.

This started off at just over 10,000 and the number peaked at just over 12,200 at the end of 2016 and had fallen to 11,300 by the third quarter of 2017, with the total outstanding balance tracking moving from €1.9 billion to €2.4 billion to €2.2 billion over the same period. 

The reason for the recent decline is not provided and it could be, in part, a reclassification issue as the total number of loans (PDH plus BTL) held unregulated loan owners was largely unchanged over the period. The total was 18,200 in Q4 2016 and was 18,100 in Q3 2017. 

At the end of Q3 2017, the average balance on the PDH mortgage accounts held by unregulated loan owners was €190,000.  As it is possible for more than one account to be linked to the same PDH property it is likely that the 11,300 accounts corresponds to around 9,000 properties.

And here are the details of those accounts which are 720 days or more in arrears.

PDH Mortgage Accounts Arrears with Unregulated Loan Owners

Over 40 per cent of the PDH mortgage accounts held by unregulated loan owners are more than two years in arrears and these accounts make out almost 60 per cent of the total balance due on PDH mortgages to these entities.

The average balance on the accounts more than two years in arrears is over €250,000.  The figures giving the amount do not seem that reliable with a near 50 per cent jump showing for Q1 2017, so there is possibly some measurement or reclassification issue at play.  Taken at face value the Q3 2017 would indicate that the average amount of arrears on PDH mortgages which are more than two years in arrears held by unregulated loan owners was almost €130,000. 

That is an extreme level of arrears and seems incredible.  That would be six full years of missed payments on a 20-year €250,000 loan at an interest rate of six per cent.  There may be some instances of that but to suggest it is the average seems unlikely.

We don’t have much insight into the repossession activities for these entities.  In the Q1 2016 release it was shown that in that quarter between PDHs and BTLs unregulated loan owners and non-bank retail credit firms repossessed 15 properties on foot of a court order and took possession of a further 57 properties via a voluntary surrender arrangement.  Those made up about about five per cent of repossessions and 25 per cent of voluntary surrenders in the quarter.  However, without other observations it is difficult to make any meaning of those.

Repossession by Non-Bank Entities Q1 2016

In recent quarters a table like that above has not been provided and we have only been provided with the number of properties in possession of the entities at the end of the quarter rather than their repossession activity.  The number of PDH properties in the possession of unregulated loan owners at the end of the last three quarters were:

  • Q1 2017: 183
  • Q2 2017: 186
  • Q3 2017: 187

Without knowing the underlying repossessions and disposal amounts nothing can be gleaned from these figures.  It would be useful if the table provided in Q1 2016 was made available for PDH accounts held by unregulated loan owners which would show the level of court-ordered repossessions and voluntary surrenders involving these entities.  Getting some insight into the number of forced sales would also be useful and that applies to all mortgage providers not just unregulated loan owners.

What will happen to the loans held by unregulated loan owners?  It is still not clear but if proposed sales go ahead there is a good chance that they will increase.  After such sales are completed we can expect the numbers to decrease but how that will be achieved (redemptions, repossessions or resales) remains to be seen.

Monday, February 12, 2018

The national balance sheet

After looking at the improvements household sector financial balance sheet here we consider what is happening to the balance sheet for the entire economy.  Ireland has a bit to go until the presentation of our national balance sheet data reaches the level provided by the ONS for the UK but we can get a good idea of what is going on from the information that is available. 

The national balance sheet essentially comprises four items:

  • Non-produced fixed assets (such as land)
  • Produced fixed assets (such as buildings, infrastructure, equipment and IP)
  • Financial assets (such as deposits, equity and pension savings), and
  • Financial liabilities (such as loans)

For Ireland, the CSO provide figures for the latter three but estimates of the stock of non-produced assets are lacking and a broader measure of produced non-financial could be provided with the addition of estimates for inventories, and possibly, valuables.  There are very few countries providing these figures to Eurostat but their number is increasing. 

Still, what we have gives us a good start and there is a lot going on.  First a look at the broad categories since 2001.

National Balance Sheet 2001-2016 Table

Excluding land, for which figures for Ireland are not available, we can see that total net worth of the Irish economy was just over €240 billion at the end of 2001.  This rose to over €440 billion by around 2006/07 but this was based on inflated valuations and by 2011 net worth had fallen back to €180 billion.  It has recovered since then at stood at €315 billion at the end of 2016, or €66,600 per capita.

Behind this net worth figure the gross amounts are enormous, particularly on the financial side which is influenced by the investment funds linked to the IFSC.  These have huge gross positions but, by and large, the assets and liabilities net off against each other.  We can see this if we look at the net positions by sector.

Unfortunately, we are only give a breakdown of net financial worth by sector.  Ireland is one of seven countries that do not provide a breakdown of produced fixed assets by sector (the other six are Bulgaria, Cyprus, Malta, Romania, Slovakia and Spain).  This means we can’t get net worth (as defined here) by sector but we can track net financial worth by sector.  And it’s quite the roller-coaster.

National Balance Sheet by Sector 2001-2016 Table

By 2007, net financial worth of the total economy was a little less than minus €60 billion.  In the nine years since it has deteriorated by over €400 billion.  As we looked at earlier the net financial position of the household sector has been steadily improving and by the of 2016 was up more than €100 billion on its 2007 level.  Over the same period the net financial position of the government sector has deteriorated by €150 billion, with the net financial worth of non-financial corporations going south to the tune of €400 billion.  The position of financial corporations has bounced around a bit but has never gone outside the range +/- €50 billion.

The government doesn’t have a whole lot to show on the balance sheet for its borrowing as a lot of it went to fund current expenditure.  There has been a significant rise in produced fixed assets and it is easy to see that most of this has been bought by the NFC sector so the fixed assets will be matched by accompanying financial liabilities.  The household sector has been deleveraging and there has been very little output of the produced fixed asset it would buy: housing.

Anyway, even though the net financial position of the economy is down €400 billion since 2007, once we account for produced fixed assets that have been acquired we see that the net worth of the economy has gone from €440 billion in 2007 to €315 billion in 2016, a reduction of €125 billion.  Part of this fall and rise will have been due to house prices but it should be noted that the value of dwellings included in produced fixed-assets excludes the value of the land on which the property sits.

Here is what has happened to the nominal net values (i.e. after depreciation) of the main produced, non-financial assets. 

National Balance Sheet by Fixed Asset 2001-2016 Table

It can be seen that the nominal value of dwellings (excluding site value) fell by €85 billion in the years following 2007 and has recovered about half of that.  The value of other buildings is well ahead of 2007.  In the past two years the stock of fixed assets has surged by €300 billion with most of this due to changes in the suppressed categories dealing with aircraft for leasing and IP licenses.  As most of these are likely linked to financial liabilities they will net out in the overall net worth position.

There might be other items we would wish to see included particularly in relation to contingent or accrued liabilities.  At the sectoral level this might give a different view but in overall terms the net position of the economy would be unchanged as a liability for one sector would be an asset for another.  This would be the case, for example, is accrued pension liabilities to public sector workers were included.  They would be a liability for the government sector and an asset for the household sector.

So where stand us in relative terms compared to the rest of the EU15?

EU15 Total Net Worth Per Capita 1995-2016

Not great actually, but after the vertiginous drop in 2008 and flatlining from 2010 to 2014 we have been pulling away from the bottom of the pack for the past few years.  The volatility in the Irish series is not seen for any other country.

What would happen if land was included?  Here are the per capita net worths excluding and including land for the four countries which provide such estimates.

Net Worth without and with Land

Given the changes here it seems probable that Ireland’s per capita net worth would roughly double if the value of land was included, though the relative ranking in 2016 may not be much changed if this was applied across all countries.  Let’s hope we can rise through the rankings in a more sustainable fashion this time.

To conclude here are the main items on the balance sheet in per capita terms for Ireland since 2001.  Click to enlarge.  And note again these values are nominal.

Ireland National Balance Sheet per capita 2016 Table

And for the countries of the EU15 (excluding Luxembourg) for 2016.

National Balance Sheet per capita 2016 Table