Irish Budget 2014: Michael Noonan, finance minister, said
at the weekend that
the nation will be "astounded by all the good news in the Budget,"
which will be
delivered on Tuesday afternoon. He is expected to announce some eye-catching job
creation and possibly pension measures that may well result in a continuation of
the levy on private sector pensions.
The White Paper with the Estimates of Receipts and Expenditure
[pdf] released late
on Friday night shows the Department of
Finance's 2014 estimates prior to Tuesday's adjustments. The paper shows that
the 2014 general government deficit would be 5.8% of GDP (gross domestic
product) while the 2013 deficit is forecast at 7.3%.
Seamus Coffey, the UCC economist, says that around three-quarters of
the 1.5 percentage point improvement can put down to three factors:
- The February 2013 liquidation of the IBRC required a €1.1bn (0.7%
of GDP) payout under the Eligible Liabilities Guarantee (ELG) which will not
happen in 2014;
- The 9% temporary VAT rate for the tourism sector introduced in July 2011
automatically expires on the 31st of December 2013. This will increase VAT
receipts by around €360m (0.2% of GDP);
- The full-year roll-out of the Local Property Tax is expected to generate
an additional €250m (0.2% of GDP) of revenue in 2014;
- That only leaves 0.4 percentage points of a “do nothing” deficit
improvement to possible growth effects (and there are other minor
carry-forward effects that kick-in in 2014).
Coffey says that if deficit outturn for 2014 is set
at 4.8% of GDP that means a
1.9 percentage point improvement in the deficit would be required in 2015
to keep in line with the limits set out under the Excessive Deficit Procedure
(an EDP limit of 2.9% of GDP has been set for the deficit in 2015).
Noonan is expected to announce public investment in job creation projects and
a cutting of the capital gains tax for entrepreneurs.
We said last June
on the wind-up of the public pension fund:
With no credible jobs engine that could result in the creation of 200,000 net
sustainable jobs in coming years; no prospect that an international recovery
could trigger the "rocket" growth that Michael Noonan, finance minister, waxed
eloquent about in 2012; ministerial economy with the truth in respect of the
economy and challenges ahead; international tax rules likely to be changed for
the first time since Ireland began using tax policy to promote inward direct
investment in 1956; a weak indigenous sector illustrated this week by Elan, the
onetime biotech firm reduced to a shell and putting itself up for sale and a
Labour Party, the junior member of the governing coalition on the ropes mid-way
in the election cycle, provides the backdrop to this week's announcement that
the €6.4bn left in a public pension fund after bank recapitalisations, will
be transferred to an Ireland Strategic Investment Fund (ISIF) to create jobs."
So there is significant funding available for projects between now and
general election in 2016.
expected cut in the capital gains tax rate from 33% for entrepreneurs is not
going to impact job creation. Unless a rate is punitive, nobody is going
to decide on starting a business based on the rate.
Besides, a low rate could even make the
innovation policy more ludicrous by providing an additional sweetener to
founders of publicly supported young high tech companies to sell to bigger
American firms, before the taxpayer gets a return.
The Central Statistics Office has reported that
33,000 jobs were created in the economy in the year to June 2013. The CSO
says most of the jobs were in agriculture and tourism activities and
almost half the number were in self-employment (without employees).
Ministers brag about the 33,000 but at 86,000,
there are more than that number in publicly-funded back-to-work schemes. Over
30,000 unemployed are in receipt of education allowances and the
remaining 50,000+ are counted as employed in schemes such as JobBridge and
So it's not only emigration that can give a
misleading picture of the jobs market.
Last year the Labour Party ministers on two
pensions demanded a big cut in tax relief for pension pots that delivered
pensions over €60,000 in income and this is set to take effect in 2014. The net
benefit for the exchequer is €250m. Beneath this overall limit, tax relief will
continue to be granted on pension contributions at the individual’s marginal
rate of income tax.
Various groups have lobbied for the retention of
the 9% tourism VAT rate that was introduced in 2011 and paid for by a €1.8bn
raid on private pensions via an annual levy of 2% which is due to expire next
Of course the advocates of retention of the low
rate haven't said how it should be funded and the minister who has 3 pensions
(he is a former teacher) may be tempted to continue the levy.
In a period of low yields, 2% plus charges on
funds can wipe out any annual gain that a person near retirement invested
cautiously, could achieve.
Irish Budget 2014 Page
|Last week's ESRI Quarterly Economic
The Quarterly National Household Survey data show that seasonally adjusted
employment rose by at least 0.5% quarter-on-quarter for the last quarter of
2012 and the first two quarters of 2013, resulting in an accumulative
increase in employment over the three quarters of over 1.5% These data on
employment have a good record on reliability and are rarely revised, unless
due to a census.
While the CSO has indicated that there was some uncertainty about the
sectoral classification of the employment increase, the change in total
employment could be treated as being reasonably reliable.
The Live Register data up to September 2013 suggest that the fall in
unemployment has continued into the third quarter. If this is the case, then
the growth in average employment in 2013 compared to 2012 is likely to be
closer to 2% than to the 1.5% that would transpire if there were no further
employment growth in the third and fourth quarters…When the growth in
employment is combined with a conservative estimate of only a small rise in
productivity, this suggests a growth rate for the economy in 2013 of around
2% - - the forecast for GNP in this Commentary. “
Some of you may recall a month ago that Joan
Burton, minister for social protection, told
a press conference: “Ireland is now firmly in recovery mode,” having broke some
good news at a Cabinet meeting. “I have just got the figures for the Live
Register this week, it’s fallen by 7,700.”
At the end of September, there were
500,000 on the Live Register including
86,000 in publicly funded activation programs.
The 86,000 unemployed are counted as employed or in ‘Back to Education’
In April there were 33,000 in ‘Back to Education’ courses and 21,000 dropped off
for the summer months with some signing on the Live Register (as the education
allowance is not paid during the summer period). In September they returned to
courses and this was why Joan Burton thought there was a jobs miracle in the
making as they signed off the LR. The seasonally adjusted fall in the month was
I have a suspicion that part of the rise of 33,000 additional jobs in the year
to June 2013 reflects an understatement of earlier quarters.
Q1 2012 showed a non-seasonally adjusted drop in jobs in the quarter of 22,000
even though the Live Register fell as well.
Seasonally adjusted net jobs rose 11,000 in Q1 2011 and fell 8,000 in Q1 2012.
In the QNHS June 2013, almost half the jobs added (15,000) are in
self-employment. It is not clear how many of these are classified as full-time.
Part-time workers who want full-time work was at 149,000 in June 2013 up from
4,000 in 2007.
I’m not disputing that there have been jobs added but data remains fragile. The
CSO has reported falls in its monthly services index in July and August.
Full-time jobs in agency-assisted foreign firms in Dec 2012 were down 3,700
As regards the growth impact, there
are 235,000 people either in activation programs or underemployed - - 11% of the
workforce . Together with 301,000 officially unemployed, that gives a total of
over 24% who are not making big bucks.
Is that a basis for a big growth surge in 2014?
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