|From left to right: Tonio Fenech, Minister of Finance of Malta, Brian Lenihan, Irish Minister for Finance and Christine Lagarde, French Minister for Economic Affairs, Industry and Employment, Brussels, Sept 06, 2010.|
The Irish Exchequer deficit, at end-October 2010 was €14.4bn compared to
€22.7bn at end-October 2009. The overall Exchequer position for the first
ten months of the year means that the December 2009 Budget Day targets remain valid. The €8.3bn year-on-year decrease in the Exchequer deficit is
largely due to payments of €3bn to the National Pensions Reserve Fund
(NPRF) and €4bn to Anglo Irish Bank, which were made in the first ten
months of 2009.
Taxes are €1.4bn or 5.4% below the same period last year with net
voted expenditure just over €1.6bn or 4.2% lower. Non-tax revenue is
up €1.9bn in the year, due primarily to some €1.3bn in bank
guarantee fees and increased Central Bank surplus income. However, on the
non-voted current spending side, debt interest costs are €651m higher
in the first ten months of 2010 than in the same period in 2009.
Tax receipts in the first ten months of the year amount to €24.7bn.
This is €243m or 1% above target. The Department of Finance said the strong monthly
performance in October can be attributed to corporation tax receipts being
€238m greater than anticipated. The overall corporation tax surplus
in the first ten months of the year at €473m, combined with smaller
surpluses in excise duties and VAT, offset an income tax shortfall of €369m. A shortfall in DIRT receipts in the month of October accounts for a
large proportion of the overall income tax shortfall.
The year-on-year rate of decline in tax revenues now stands at 5.4%.
Taxes were projected to end the year down 6% on 2009. November is the most
important month of the year for tax revenues with 15% of the annual target
due for collection. It is a particularly important month for income tax,
notably from the self-employed, VAT and corporation tax and there are large
targets to meet for each of these tax-heads.
Total net voted expenditure at end-October 2010 is €37.2bn, which
is just over €1.6bn or 4.2% below the same period in 2009. The Revised
Estimates Volume projected a decline of 1.9% in total net voted expenditure
Net voted current expenditure, at €33.7bn is on target. It is €206m or 0.6% down on the end-October 2009 position, despite the large
anticipated increase in the current spending of the Department of Social
Protection because of unemployment payments.
Net voted capital expenditure, at just over €3.5bn at end-October
is €1.43bn or 28.9% below the corresponding period in 2009. It is
€1.02bn or 22.5% below target. The Department of Finance said it is now expected that there will be
some significant savings in capital expenditure at year-end but the precise
scale of the savings will not be known until December. The 2010 cost arising
from the recently announced staff redundancies in the HSE will also
offset these savings to some extent
End October Exchequer Statement
End October 2010 Analysis of Tax Receipts
Analysis of Net Voted Expenditure
Davy economist, Aidan Corcoran,
Corporation taxes €473m (22%)
ahead of target
The corporation tax-take of
€2.6bn by end-October is €473m (22%) ahead of target, with €238m of this
excess coming from a strong October performance.
Combined with smaller surpluses
in excise and other headings, this more than offsets the income tax
shortfall of €369m (4.1% of target), leaving the end-October tax-take at
€24.7bn, or €243m, ahead of target.
The imbalance between the income
tax shortfall and corporation tax excess partly reflects the poor
performance of the domestic relative to the export sector, something we
expect to continue over the coming year.
Bank guarantee fees offset higher
national debt interest
Non-tax revenue rose €1.9bn
compared with the take in the ten months to October 2009, thanks mainly to
€1.3bn in bank guarantee fees and higher central bank surplus income.
Debt interest costs also
increased and stood €651m higher in the first ten months of 2010 than in the
same period in 2009.
The apparent achievability of
the targeted underlying fiscal deficit for this year may help to reduce
Ireland's borrowing costs before the next debt issue, early in 2011.
Spending tightly controlled
Net voted capital spending is
now €1.025bn, or 22.5%, below profile.
Savings on this side will
continue until year-end and should offset the cost of voluntary redundancies
to be undertaken by the Health Service Executive in 2010.
NCB Stockbrokers' economist,
Brain Devine, commented:
Tax receipts at the end of
October were actually 1.0% or €243mn ahead of target, driven by corporation
tax being 22.0% or €473mn ahead of target. VAT was 0.5% or €38mn ahead of
target, while income tax was -4.1% or €369 behind target. The other major
tax category of Excise was 1.9% or €70mn ahead of target.
Total spending was 2.7% or
€1,044mn below where the Government had expected for the year to Ocotber.
This was driven almost entirely by capital spending which was €1,025mn below
the projected profile. The Government has indicated that there will be
significant savings in the capital budget for the year.
The government’s monetary target
for an €18.8bn exchequer deficit in 2010 now looks likely to be achieved.
This will leave the underlying deficit to GDP ratio at approximately 12.0%
of GDP. The 4 year budget is likely to be €15bn in size, conservative,
credible and well delivered with the backing of the EU and ECB. The problem
for Ireland though is that market sentiment has deteriorated sharply on the
back of talk on a sovereign restructuring mechanism for the Euro area.
Ireland’s 10 year yield is out 19bps today, with the front end of the curve
particularly hard hit 2012s +45bps, 2013s +40bps and 2014s +22bps.
The weighted average yield on
Irish debt is approximately 6.3% with a weighted maturity of 2017. A serious
shift in market sentiment is needed if Ireland is going to be able to renter
the funding markets at rates which do not make debt sustainability an issue.
Ulster Bank economists Simon
Barry and Lynsey Clemenger commented:
better-than-expected month for tax receipts
Tax revenues came in ahead of the of the Department of
Finance’s monthly plan for the third consecutive month in October. This marks a
clear improvement in performance relative to earlier in the year when the
tendency was to disappoint. The monthly overshoot in receipts in October
totalled €284mn. This not only represents the largest degree of outperformance
relative to plan so far this year, but the biggest upside surprise in any month
in almost four years (November 2006 to be exact). In terms of the detail, the
main source of the upside surprise in October was in corporation taxes, which
came in €238mn ahead of target. Stamp duties and excise taxes were also ahead of
expectations last month, to the tune of €75mn combined.
Looking at the cumulative figures
for the year to October, revenues are some €243mn or 1.0% ahead of plan. The
situation in the important area of tax revenue has been moving the in right
direction in recent months, with the result that year-to-date tax revenues are
now running ahead of the Government’s target for the first time this year.
While, at €24.7bn, tax receipts are 5.4% behind the corresponding period in
2009, the rate of decrease has moderated considerably from the large double
digit declines seen earlier in the year and is now at its smallest since January
2008. In fact, the position in October beats the Government’s 6% end-year target
for the tax shortfall, meaning there is still a small degree of wiggle room in
the two remaining months of the year. This leeway may be helpful given that
timing issues may have played a role in October’s outperformance, particularly
in the case of corporation taxes and stamp duties. Certainly at this stage it
looks as though tax receipts are broadly on track to hit Minister’s €31bn
full-year target from the 2010 Budget day back in last December. However, this
is subject to two main caveats. 15% of the total year tax intake is due this
month, with a decent performance here critical. Furthermore, the performance of
the economy into year end will have an important bearing.
restraint even more evident as expenditure now running 2.7% lower than plan
Turning to spending levels by government departments, the October numbers show
considerable savings on both a year-ago basis as well as relative to budgetary
targets. Total voted expenditure is running €1.6bn, or 4.2%, lower than last
Expenditure is also running over €1bn, or 2.7%, behind plan as government
departments continue to deliver greater than-anticipated expenditure restraint.
Note this is a greater degree of spending control than evident in last month’s
figures which showed a 2.5% shortfall. The major pull-back in capital spending
is very much ongoing, with capex levels now €1.4bn lower than the same period in
2009, corresponding to a 29% y/y fall. The cumulative savings in the year to
October over and above what was originally budgeted for now amount to €1bn.
We have consistently highlighted the fact that capital spending was running well
behind plan from very early in the year, which we took as an indication that
additional savings were likely to come through from this source. And with only
two months of the year remaining, that now looks certain to be the case – a
point acknowledged by the explanatory note from the Department which referred to
the expectation that “there will be some significant savings in capital
expenditure at year-end”.
But the pattern of spending restraint goes beyond the capital side. Day-to-day
spending is now also running below target, albeit by a modest 0.1%, reflecting a
level of spending which is 0.6% lower than this time last year. Elevated levels
of spending on social welfare (up 24% y/y) continue to mask the considerable
discipline which is clearly being brought to bear in other areas. Outside of the
Department of Social Protection, current spending is over 9% lower than in 2009
and is 1% lower than anticipated for this stage of the year.
Better tax receipts, even greater spending control mean net spending/tax
situation €1.3bn better than expected
Ireland is clearly in the dog-house as far as the financial markets are
concerned, judging by the fact that the Irish bond spread has widened out to new
record highs of over 4.8% today. However, today’s exchequer figures show that
tax revenues are ahead of plan, and that spending by government departments is
considerably lower than plan. Despite the doubts which investors clearly have
about the sustainability of Ireland’s fiscal position, we continue to regard
Ireland as a credible deficit reducer.
The combination of the largest monthly upside surprise in tax receipts in some
four years and significant ongoing spending restraint leaves the net
tax/spending situation running €1.3 billion better than expected. This is a very
helpful starting point as the Government finalises its much-awaited four year
fiscal plan – a plan which takes on even more criticality given the latest
deterioration in investor sentiment.