Thursday, January 6, 2011

Current Account continues to deteriorate

Although the press statement released with the Exchequer Accounts this week indicates that Minister Lenihan believes “that our public finances have stabilised” it is hard to find the reality that ties in with this view.

Here is just one snapshot of the state of our public finances – the balance on the current account (the day-to-day expenses of running central government).

Current Account Balance

The highest ever current budget deficit was recorded in 2010 at €12.6 billion.  The overall exchequer deficit is down from €24.6 billion to €18.7 billion and might grab some headlines.  Graph here.  However, this is entirely due to “savings” on the capital account. 

Capital expenditure was further reduced by about €1 billion in 2010 (projects postponed), and the €4 billion injection into Anglo Irish and €3 billion frontloaded contribution to the NPRF  (for the AIB and BOI recapitalisations) that were part of the 2009 deficit did not occur in 2010. (Or rather there was further bank recapitalisations in 2010 but we have used some accounting magic to keep them off balance sheet.)

The truest barometer of the state of the public finances is the current account deficit.  This is the balance of revenue (primarily tax revenue) against voted current expenditure (wages, pensions, transfer payments, goods and services) and non-voted current expenditure (mainly debt interest).  This does not paint a pretty picture.

  • Tax revenue fell €1, 291 million
  • Voted expenditure rose €261 million
  • Non-Voted expenditure rose €1,468 million

Not much sign of stabilisation here.  The current account would be in continued freefall but was supported be €1,851 million increase in non-tax revenue.  This was mainly down to an increase in the Central Bank Surplus of €415 million and receipts from the institutions covered by the Bank Guarantee Schemes of €1,333 million.  Without these receipts the Current Account Deficit would have been even worse.

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