While tax revenues have collapsed, government income from PSRI and other levies (such as health) is up 70% in the last five years
Aggressive productivity improvements (certainly by Government standards - 5% p.a., over and above any increases in pay) in areas of current spending will be needed over a sustained period.
These improvements, together with a benign economic environment (average growth 2011-2015: 2%) and the introduction of a land value tax (or other stamp duty replacement), are unlikely to get the deficit below 4% by 2015 (a year beyond current EU grace).
In 2008, we spent €2.6bn servicing our national debt. By 2015, it’s likely that figure will have reached almost €8bn.
National debt of more than 100% of GNP, and growing unfortunately.
Thanks! Well, I did mention in the post I used a crystal ball!
Re the union rhetoric, not my intention but the numbers and shortfalls are so crazy - and clearly in the possession of everyone in social partnership three weeks ago - that I decided a mention or two might do!
Isn’t there a ghost at the banquet here though Ronan? Namely, where is the wealth and job creation going to come from? What will we be doing in 2015 on these fronts that we are not doing now? I don’t really understand how you can have an analysis of spending and income without speculating about where, for example, the income tax will come from.
(I’m not an economist by the way, so 4 letter words and short paragraphs help me enormously!).
Whichever way you squeeze the numbers, they make for unhappy reading. Interest payments and future growth are a huge elephant. The government will not be able to grow its income (i.e. get the economy growing so jobs are created, reducing social welfare) faster than interest costs are going to grow.
The horror show will come when we start to pay back some of the debt.
If the ECB sticks to its mandate of no more than 2% inflation, it basically means not much more than 2% growth is going to be sustained. That has serious implications for wages and prices in Ireland. But it has most serious implications for government finances.
Ronan, where do you see Euro/Sterling during the period and its effects on consumer spending flows?
As for what 2015 will look like, there’s no way to be sure, but at the risk of going all Taleb (or is it Rumsfeld?)
The known unknowns;
a) we will be at the end of, what is currently planned as only, 4 budgets of austerity and the resultant deflationary effects on the economy.
b) history suggests that the Irish don’t stay at home in a recession.
c) even if the IDA were to “pull a rabbit out of a hat” with a new Intel-esque mega FDI investment or even a number of more modest ones, it would take, at a minimum, 3-5 years before they reached the stated direct employment targets
d) at around 5 years in, there should be some strong indiciations as to the level of quality and performance (or not) of the loans owned by NAMA, which if below the stated “expected” levels, despite being off balance sheet, could impact on the State’s credit rating and borrowing costs
e) with a the Tankan survey in Japan, still the worlds 2nd largest economy, suggesting most companies there will cut capital expenditure in 2010, that will knock on into sales to Japan form their major partners China (Japan is their 3rd largest export market), the US (again 3rd largest export market) and the EU (6th largest market for the EU27). In an interconnected world, that’s going to affect companies both directly and a step or two removed.
Then there is the effect of the likely leveraged boyout (or is it leveraged bailout) of the main banks by the government in 2010 and it’s effects down the road on the credit rating. Perhaps the EU will clamp down on our “favourable” tax regime. Where will ECB rates go?
All very good points but you are missing the single biggest unknown. Just how much of Irelands tax evasion and regulatory evasion economy will survive the next five years? I see absolutely no scenario where they survive in their current form.
Starting about 3 to 5 years out as the domestic budget crunch becomes politically unbearable you will start seeing very serious moves from countries like the US, UK, Germany etc to stop the flow of funds through Irish subsidiaries purely to avoid tax. These countries loose many many billions of tax each year due to Irish state facilitated tax evasion by MNCs. The Irish subsidiary of Microsoft on it own costs foreign taxpayers somewhere north of $7B a year in lost revenue. Add up all the rest of the MNC tax evasion that is facilitated by Irish subsidiaries and you are talking a noticeable percentage of the domestic countries tax revenue.
This situation will not be allowed to stand when the desperate scramble for revenue by governments starts in 2 to 3 years times. The MNC tax evasion will no be shut down completely but I would be not very surprised if the majority of the current Irish revenues of MNC’s is repatriated in 5 years time.
So there goes 40% of Irish exports and maybe 20%/30% of Irish tax revenue. And all hope of recovery through economic growth for several decades.
And we have not even got to the festering cesspit of the IFSC yet. Having already destroyed the domestic banks and spawned NAMA if the IFSC implodes in the next few years (and I cannot see how it can not by this stage) then the international political and financial liability fallout has a very good chance of propelling Ireland to Trans-dniester levels of pariah status.
Why shouldn’t everyone pay, the system that we have at the moment isn’t progressive enough when the min wage is essentially untaxed,first €7500 tax free with rates starting at 5% up to 50% all in, thats a progressive tax system, where everyone pays, even a little.
I would additionally remove all automatic free medical cards for the over 70’s and have the amount they can earn be dropped to €30,000 per household.
Most of the income tax gathered in this country will come from those earning €40k plus, whilst those on €15k pay nothing except an income levy.