Now you see it, now you don’t

Just two days ago we asked “where is our money?” when discussing the €24.8 billion of cash we are supposed to have at the end of the year as indicated at the top of page 3 in the Maastricht Letter released a little over a week ago.

Today we learned that €3.6 billion of this cash never even existed in the first place.  The error has to do with the treatment of the Housing Finance Agency (HFA) in the general government accounts.  Prior to 2010 the HFA was a standalone entity whose assets and liabilities formed part of the general government accounts. 

For 2010 the HFA’s financial transactions were assumed into the National Treasury Management Agency so the assets and liabilities of the HFA should no longer be individually included in the general government accounts as the figures are incorporated into the NTMA’s accounts.  To include the HFA’s assets and liabilities again is just double counting and that is just what happened.

The NTMA issued €3.6 billion of government notes on behalf of the HFA and this €3.6 billion of debt was included in both the liabilities of the NTMA and the HFA.  However, the State only owes the €3.6 billion once so the debt of both agencies should not be included in the general government accounts.  Similarly the €3.6 billion appeared on the asset side of both agencies’ balance sheets and also should only be counted once.

The NTMA raised €3.6 billion and placed it “on deposit” with the HFA.  The NTMA counted this as a market deposit even though the money was actually not available for use.  This is usefully explained in this note from the CSO.

As the changes affect both our asset and liabilities positions there is nothing “saved” from the discovery of this error.  The final sentence from the CSO note sums it up nicely.

“Overall, the State is no better or worse off as a result of the correction.”

But at least know we know where some of that €25 billion is.  Let’s hope the remaining €21 billion doesn’t do a similar disappearing trick.