Thursday, August 19, 2010

New Car Sales

It’s two months since we last looked at the figures for new car sales released by the Society of the Irish Motor Industry.  The figures are here.  The relatively strong trend in new car sales has continued.  Of course, this is relative to the 2009 lows.  Figures are still substantially below those seen in 2007 and 2008.
Car Sales to July
The running total to the end of July for 2010 of 74,111 is nearly 16,500 ahead of the total new car sales for the whole of 2009 (57,635).  Retail sales in general may be going into reverse but in the motor industry they continue to improve.
The last five months of the year are generally very poor for new car sales.  In 2009 just over 7,000 cars were sold in the period from August to December.   Even for the “boom” years this is a very quiet time in the car showrooms.  This five month period had 20,500 sales in 2007 and 11,200 in 2008.  These correspond to 10.9% and 7.3% of the total sales for the year.  It will be interesting to see if the pick up in new car sales seen so far in 2010 will continue into this traditionally quiet period.

Thursday, August 12, 2010

Core Deflation eases again

The headline figure from the July CSO Consumer Price Index release may be that we are headed for inflation once again but the measure of core inflation we have been following remains negative, though it did increase in the month.
Core Inflation July
The overall CPI recorded an annual decrease of just 0.1% in the year to July.  The measure of core inflation used here excludes the effect of Mortgage Interest and Energy Products.  The measure of core inflation comprises about 85% of the overall CPI.
After remaining below -2.5% for six months, core deflation eased in July and stood at –1.7% for the year.

Wednesday, August 11, 2010

Retail Sales Reverse

The June release of the Retail Sales Index from the CSO may have gotten more coverage for being inadvertently tweeted a couple of days before its official release but they provide further evidence that the Irish economy has not emerged from recession as was sung from the rooftops with the Q1 National Accounts.
We suggested from the May figures that retail sales were stalling, but now it clear that they are gone into reverse.  A graph of the annual changes shows retail sales are turning around but not in a direction to be heralded.  The actual index values can be seen here.
Annual Change All Business Index
After moving into positive territory for one month in April the annual change in the value index has been negative since and in June retail sales by value were 2.8% below the level recorded in June last year.  The annual change in retail sales by volume has been positive since February but the recent trend could see this series also resume on a downward trajectory.
The monthly change was negative for retail by both value (-0.7%) and volume (-0.1%). See graph here.
If we look at the index excluding the large effect of motor trades we see a similar pattern emerging.   The graph below gives the annual changes in the retail sales index excluding motor trades.  The actual index values can be seen here.
Annual Change Ex Motor Trade Index
Here both the value and volume series are negative, and heading deeper in that direction.  By value retail sales excluding motor trades are down 4.8% on the year.  This is not a good indicator of VAT revenues.  The monthly changes of the index excluding motor trades reflective the annual changes.  See graph here.
There’s not much talk of “turning the corner” now!

Credit Card Data

It is six months since we last examined the credit card data published by the Central Bank.  In most cases the conclusions we drew then are still valid.
If we first look at the headline figure of the annual change in total credit card indebtedness. 
Credit Card Indebtedness
Up until the beginning of 2007 the annual growth rate was consistently above 15%.  Since then it quickly collapsed and has oscillated around zero for the past 16 months.  The total credit card debt for June 2010 (€2,995 million) is less than the total debt for June 2008 (€3,001 million). 
There are also fewer issued credit cards being used.  Towards the end of 2008 there were nearly 2.4 million cards issued.  Now there are less than 2.3 million.  All of this drop has been in personal cards rather than business cards.  See graph here.
Looking in more detail at the actual amount of debt on our credit cards, and two of the key drivers of this statistic, monthly credit card purchases and monthly credit card repayments.
Credit Card Monthlies
We can see that after increasing consistently through most of the decade, the total level of debt levelled off in early 2008 at around €3 billion, while the monthly spending and monthly repayment lines have been trending down for the past 24 months.  The following graph isolates the new spending and repayments lines.
Spending and Repayments
If we further isolate new spending on credit cards as a barometer of consumer activity.   I think this is a better measure of consumer activity than the more cited measure of total indebtedness, which is also influenced by interest and charges as we will see below.  The following chart shows the annual change new spending on credit cards each month.
New Spending on Personal Cards
The contraction is new spending on credit cards has not ended.  Although the annual decreases have risen from the lows seen in early 2009, the amount of new spending on credit cards is still declining.  New spending in June 2010 was 8.2% below the level of new spending in June 2009.  The bite of the recession has not passed yet.
As seen above the total amount of new spending has begun to drift below the total amount of monthly repayments.  In fact for 24 of the past 30 months monthly repayments have been greater than new spending.
Spending less Repayments
The peaks in this series occur in December of each year when new credit card spending is highest.  However, even with repayments exceeding new spending we have seen that the total level of indebtedness has been largely stable at around €3,000 million.  In fact, over the past 30 months back to January 2008, repayments have exceeded new spending by €956 million.  At the same time the total level of indebtedness has RISEN by €62 million.
So even though more has been paid off credit cards than has been spent on them the total amount owed has increased.  This is because spending and payments alone do not account for credit card balances - the extra amount is accumulated interest (and other charges).
The Central Bank do not give data on the amount of interest added to credit card balances but we can infer it given that the monthly change is approximately spending plus interest minus payment. The change may also be the result of some non-interest charges and duties. Looking at the approximate monthly interest payments and charges.
Interest and Charges
The peaks that approach €80 million correspond to April of each year when the annual government duty of €30 (previously €40) on credit cards is due.   Since January 2008 about €960 million has been added to credit card balances through interest and charges.
If we look at the effect this has on the average debit balance of personal credit cards.
Balance on Personal Cards
The average credit card balance has not been decreasing.  In fact there has been no month in which the annual change in personal credit card balances has been negative.  See graph here
Our credit card balances are increasing not because we are spending more than we are paying (we do the opposite) but because of the interest on outstanding balances. Although we generally pay the equivalent of our monthly spend each month we do not pay down enough to cover the accumulating interest and reduce the outstanding balances.

Thursday, August 5, 2010

Stamped out

The poster boy of the tax boom from the last days of the Celtic Tiger was undoubtedly Stamp Duty.  Though typically associated with property transactions Stamp Duty is actually a collection of six separate duties (two discontinued).
  1. Conveyances of lands, houses and other property, leases and mortgages
  2. Transactions in Stocks and Shares
  3. Companies Capital Duty (discontinued in December 2005)
  4. Cheques, Credit cards etc.
  5. Insurance and Miscellaneous
  6. Levy on Certain Financial Institutions (2003-2005, discontinued)
Some details of the duties can be found in the Statistical Report of the Revenue Commissioners.  Stamp Duty went from being a relatively insignificant source of revenue bringing in a couple of hundred million in the 1990s to bringing in nearly four billion euro at the height of the property-fuelled boom in 2006.  Since then it has collapsed.
Total Stamp Duty Revenue
Of course all taxes rose during the boom, but the rise in Stamp Duty was disproportionate.  By 2006 Stamp Duty had risen nearly 1300% from its 1993 level, while total tax revenues had increased by less than 400%.  See graph here. Stamp Duty made up about 3% of total tax revenue in the mid-1990s, but reached almost 8% of total revenue in 2006. Graph here.
What is of some interest is the source of the Stamp Duty revenues.  The following graph shows the revenues from the six different forms of Stamp Duty. 
Individual Stamp Duties
The source of the “bubble” is easily identifiable!  As a proportion of total Stamp Duty, revenue from the conveyances of land and property rose from and 45% of the total in the mid-1990s to over 80% in 2006.  By 2009 this had collapsed back to 33%.
The following graph gives the proportions of total Stamp Duty revenue that each of the four remaining duties have comprised since the early 1990s.  2009 was the first time that Stamp Duty on the conveyances of land and property did not generate the largest revenue.
Proportions of Individual Stamp Duties
The increase in insurance Stamp Duty is due to an increase in the duty on non-life assurance premiums from 2% to 3% and the introduction of a 1% duty on life assurance premiums.  Without these duty from land and property conveyances would still be ahead and overall Stamp Duty revenue would be down about €200 million.

Wednesday, August 4, 2010

July Exchequer Returns

The Department of Finance have just released the July Exchequer Returns.
The Information Note is reasonable upbeat concluding that “in overall terms, this is generally in line with Department of Finance expectations and the Budget Day targets for 2010 remain valid.”
As has been our habit we will give particular focus to the patterns seen in tax revenues.  The headline is that tax revenue is ‘only’ €247 million or 1.4% behind profile.  Table here.  Of more concern is the comparison of 2010 tax revenues to the equivalent figures from 2009.  This shows a shortfall of over €1.5 billion or 8.2%.
Cumulative Tax Revenues to July 2010
After the substantial drops observed over the first few months of the year the annual decrease has eased since March.  If the decline was to stay at –8.2% for the remainder of 2010 this would mean an annual tax revenue of €30,337 million, just over the €30 billion threshold of my bet.  Any further moderation in the decline will see that annual tax take rise above this.
However, we can see that after a relatively stable Q2, where two of the three months were above their 2009 equivalents, the start of Q3 has seen a return to annual decreases.  All of the VAT months so far (January, March, May and July) have seen annual declines recorded.Monthly Tax Revenues July 2010 2
The Department’s Information Note states that “3 of the ‘Big 4’ tax-heads performed to expectations in the first seven months of the year.”  This may be true (see table here) but a comparison to last year shows that three of the so-called Big 4, Income Tax, VAT and Corporation Tax, are down substantially on last year.
Cumulative Tax Revenues to July 2010 2
Earlier in the year Excise Duty had been performing well and was actually ahead of the 2009 figure but this has now reversed and Excise Duty, like all main tax headings, is now below the 2009 figure. Looking at July alone we see this decline continuing for Income Tax, VAT and Excise Duty.  July is not an important month for Corporation Tax. 
Monthly Tax Revenues July 2010
Although completely insignificant it is interesting to note that a negative amount of Capital Gains Tax was paid in July! Anyone got a plausible explanation?
For the first seven months of the year July was actually the closest the Department of Finance have got to predicting tax revenue.  Their forecast was out by €19 million or 0.7%.
Tax Forecasts to July 2010 3 The Department’s forecasts for the individual tax headings for July were not quite as accurate (see table here), though Income Tax did come in ahead of target for the first time this year.
For those who’ve had their fill and numbers and tables here are the graphs.  Click smaller graphs to enlarge.
Tax Revenues to July Income Tax Revenues to JulyVAT Revenues to July Corporation Tax Revenues to JulyExcise Duty Revenues to July Stamp Duty Revenues to July CGT Revenues to July
CAT Revenues to JulyCustoms Duty Revenues to July
Finally let's update our analysis from May that examined the relative contributions of the various tax headings to the total tax take.
Contributions to Total Tax Revenue July 2010
The increased importance of Income Tax can be clearly seen.  Over the five years shown the combined of Income Tax and VAT has increased from 62.5% of total tax revenue to 71.7%.  Over the same time the contribution of Stamp Duty and Capital Gains Tax has fallen from 12.5% to a miserly 2.7%.  The contributions of Corporation Tax and Excise Duty are relatively unchanged with the other tax heads too small to be of interest.