Wednesday, April 4, 2012

First Quarter Exchequer Returns

The Department of Finance have released the end-March Exchequer Returns.  The relevant documents are:

The Department have improved their presentation of the tax receipts data and much of the analysis that was previously provided here is now included in the release.  This is a welcome development.

Another welcome development is the new Department of Finance Databank which gives monthly Exchequer tax receipts back to 1984.  Expenditure figures are provided in the Department of Public Expenditure and Reform Databank which has been available for some time.

On the whole, the results seem slightly positive.  Tax revenue is up on the year but a lot of that is due to delayed receipts from 2011 and some reclassifying issues between Income Tax and PRSI.  Even accounting for these, tax revenue seems to be performing as expected though there is an unusual dichotomy between the performance of VAT (up) and Excise Duty (down).

The Current Account Balance is a useful indicator of the performance of the public finances.  On first glance this would appear to be getting worse.  In the first three months of 2011 there was a Current Budget Deficit of €4,177 million.  So far this year we have accumulated a Current Budget Deficit of €4,918 million.

There are three factors to note before jumping to the conclusion that the Current Deficit is continuing to deteriorate:

  1. The Sinking Fund Contribution of €646 million has already been made for 2012.  In 2011 this transfer of €683 million from the Current to Capital Account did not take place until November.  A year-on-year comparison is unfair on 2012 because it includes a payment that was not made by March of last year.
  2. Last year the debt interest cost for the first quarter of the year was €1,425 million, but €577 million of that was paid from the Capital Services Redemption Account with the remaining €848 million coming from the Exchequer Account.  In 2012 all the debt interest bill of €1,658 million was paid from the Exchequer Account.
  3. This year’s receipts include €231 million of Corporation Tax which should have been collected in 2011 but a delay meant it was instead included in the January 2012 receipts.

To account for these we will subtract the Sinking Fund contribution from the 2012 deficit, add the interest paid from the CSRA to the 2011 deficit and subtract the delayed Corporation Tax receipts that have been added to this year’s revenue..

That means the comparison is between a deficit of €4,754 in 2011 and one of €4,503 million.  So far in 2012, the Current Budget Deficit is about €250 million better than it was at the same time last year.  It is not clear how much of this is down to timing and whether it will be continued into the second quarter, but it is positive that the current budget deficit is smaller (even if it is only marginally so).


  1. Seamus Unfortunately I cannot agree with you in relation to your comments on tax. We now have so many caveats on the tax figures, between Corporation Tax supposedly arriving late to last month's fiddle with the PRSI figures, which was used as a ploy to move money between years.

    I decided to get the totals of tax and PRSI paid and obtained the PRSI figures from a source in DSP. Below is a Table setting out PRSI received for the first three months of 2011 & 2012, together with the tax figures published

    Jan Feb March
    €m €m €m

    2012 620 445 552
    2011 751 674 680

    2012 1271 1339 996
    2011 987 980 900
    2012 1891 1784 1548
    2011 1738 1654 1580

    Difference 8.79% 7.85% -2.00%

    The January and February figures were distorted by the changes in 2011 Budget, (December's tax is paid in January and balancing payments with forms P35 distorting February payments). Therefore March is the first "normal" pay month and the figures are down!!

    The key to what is actually going on is the Excise figures - they are down. It is not conceivable that VAT is really up, while excise is down because all excisable goods are liable to VAT at the standard rate. These goods are a key part of the VAT figures. The real reason is the delays in processing large VAT refunds, because of the departure of the people who previously signed off those refunds. This is also the problem in relation to the CT position - there are huge delays in processing large refunds or those requiring technical examination.

    It will also be the position for some time as only a small proportion of those leaving are being physically replaced. The loss of knowledge is a completely different issue.

    However what is more worrying is the antics of Dept of Finance. There is a twist to each months tax figures but you have to look for it. The Income Tax figures for the last few months of 2011 were strangely low. We now know what was going on.

    Despite their messing with figures, the Income Tax figures will probably come in close to target. The Restricted Stock Units for Facebook employees vest six months after the IPO and should yield at least €250M to the Irish Exchequer.

    However beware any figures from the Dept of Finance in relation to tax. I write as one those who left the Revenue during February. whose

    1. Hi Niall,

      Thanks for that. These are useful figures that go deeper than the Exchequer Statement. The non-disclosure of monthly PRSI receipts should be discontinued. It is not helpful that a revenue source that could be around €8 billion does not have meaningful data available. This compounds the view of many that government revenue is the tax revenue reported in the Exchequer Statement when it is only about 66% of it.

      It is hard to know what is going on with Income Tax and PRSI. There seemed to be an unusually high Income Tax receipts in February (€1,339m collected versus €1,050m profile and €980m in 2011) though most of this was attribute d to the PRSI reclassification.

      The combined figures for March are very revealing. This is perhaps the best indicator of what is happening to overall Income Tax/PRSI receipts. Cumulative receipts are €251 million up on 2011 but if March is the bellwether as you suggest then this may not be maintained.

      The VAT/Excise Duty conundrum beat me and admin problems in Revenue is never an explanation I would have thought of. There is a lot to be said for scratching below the surface of the DoF's figures. Well done!

  2. if these figures were presented in this way by a corporation, they would be sent to jail, yet because it is the treasury it is ok?

  3. Seamus, The end of my comment seems to have been lost. I am one of those who left in February, who has not been replaced.

    The Revenue has the amount of refunds outstanding available and these are monitored. The production of the statistics is made much easier by the compulsory filing of tax returns by all larger companies and I have no doubt the Revenue would be happy to publish them, however the Minister for Finance and the senior staff of both PER and Finance might not. There was an incident in the past where senior Revenue staff refused to talk to some people in Finance over the use of too much gloss paint on the figures.

    The Revenue Press Office may be happy to give you the details......

    Again the publication of the Social Insurance data is a matter for DSP. In this case, I think the Minister there would be happy for the full disclosure but whether such openness would suit Noonan & Howlin, let alone the puppet masters behind them.

    VAT refunds are a particular issue. Because the 13B procedure only applies to manufacturing companies many companies involved in the export of services (0% rated B2B) are entitled to huge refunds of VAT paid on inputs. As the amounts involved are substantial there is a substantial degree of checking and on site audits.

    The Corporation Tax position is also serious and again staffing is a key issue

    Below is a link to a Dáil question posed by Joan Burton in July 2008, which gives an age and gender based analysis of 3 management grades in the Revenue. There had already been some losses in the months before this question was asked. A similar question was asked on 19th January this year. The loss of staff, particular operational male staff is striking.

    However I would suggest that the 2012 targets will, in my opinion be reached. The problem lies in 2013 and beyond. By fiddling with the figures, they are hoping to put off the evil day.

  4. Hello Niall

    Your inside knowledge could be a great resource to independent economists trying to understand the figures in exchequer statements.
    I agree wholeheartedly that every month their seems to be different twists in the departments numbers.

    Here is another example in the debt servicing cost numbers in 2011
    "Some €577 million was used from the Capital Services Redemption Account (CSRA) for debt servicing purposes in the first quarter of 2011. Expenditure from the CSRA does not impact the Exchequer"

    Do you know what the growth in this years exchequer debt servicing costs is likely to be?
    What was last years total V this years likely total.
    This is the area that i think makes our probability of default most likely. Even if we do reduce our deficit by a couple of billion this year the increase in our debt servicing may eat that up straight away. Our annual debt servicing costs are likely to exceed 10-12 billion. As far as i can see we need a write down or a significant interest rate cut to no more than 2.5% on all of our sovereign debt.

    1. Hi eamonnmoran,

      You have hit the crucial issue: interest expenditure. This is the one that will push us one way or the other.

      Interest expenditure of general government last year was around €5,125 million; this year it is expected to be €6,750 million, an increase of €1,625 million.

      By 2015, it is forecast to be €10,250 million. However of the €3,500 million increase forecast by 2015 around €1,600 million of that will be due to the Promissory Note interest. The interest holiday ends in 2013, and as the IBRC is outside the definition used for general government, the massive interest we will be paying on the Promissory Notes is included in the €10,250 million figure given above.

      The IBRC is 100% state-owned so this interest will either circle back to the Exchequer via the Central Bank or mean that the ELA owed to the Central Bank is paid down quicker and the full amount of the Promissory Notes will not have to be paid out on. These will happen much further down the line so are not of much benefit now.

      The external interest bill we will face will be around €9 billion unless a lower interest rate can be negotiated. Cutting the interest rate on the Promissory Notes will save nothing. In fact, if the proposal is to transfer the liability to the EFSF I would say stick to the Promissory Notes; it is a cheaper source of funding.

      The problem is the rate at which the ELA is paid back to the Central Bank, not the Promissory Notes.

  5. Eamonn - It is best to stick at what you know! On that basis I will make no comment on interest issues.

    However my view remains that the Government will hit their targets this year. They will not be the first Government or the last to move tax from one year to another, which I would suggest was an insurance policy against possible problems this year. The multi-national sector remains strong and the tax yield from it (PAYE/PRSI & CT)will probably be up despite some issues with a few "Irish" drugs coming off patent. Spending will be under less pressure as emigration picks up later in the year. There remains strong activity in smaller multi-nationals such as Maxim (

    However the difference is that the whole Government were not aware of the play acting with taxes. My sources in DSP tell me that the Minister and the Dept's. head of Finance were only informed of the "error" corrected in the February figures the night before the Exchequer Returns were announced.

    Their is I believe a strong political motive behind many of these actions. The position of DSP and Joan Burton has been weakened by the dependence of the Social Insurance Fund on Exchequer subsidy. This leaves Robbie Watt in PER in a position to take his pound of flesh. Though Mr. Watt was once a member of the Labour Party, he is I gather held in very low regard by Ms. Burton from her time as that party's Finance spokesperson. He is very much the puppeteer pulling the leprachaun's strings. It is he for example who is behind the proposal to cut Free Travel etc for OAPs. I have seen his pre Budget proposal to end it and when he failed he gave the idea to the Troika to do his dirty work.

    This is what happens when you put an economist in charge!

  6. @Seamus

    "Interest expenditure of general government last year was around €5,125 million; this year it is expected to be €6,750 million, an increase of €1,625 million."

    From January's Exchequer figures the debt servicing target was €7,407m for the year. Do you know the difference between your figure and that one? Is it all down to the interest portion of the promissory note?