Presentation (simon barry & brian harvey) slides

Post Budget Analysis

Thursday 13th Dec 2012

Budget 2013A Public Finance Perspective

Simon BarryChief Economist Republic of Ireland

December 2012

Fiscal correction now in its 5th year

Adjustment Package Main consolidation form Planned Impact €bn*

1. July 2008 Expenditure 1.0

2. October 2008(Budget 2009) Revenue 2.0

3. February 2009 Expenditure 2.1

4. April 2009 Revenue 3.5(supplementary Budget) Expenditure 1.8

5. December 2009(Budget 2010) Expenditure 4.1

Revenue 0.1

6. December 2010 Expenditure 4.0(Budget 2011) Revenue 1.4

Other 0.7



Total 27.5

* Figures in all cases are broad orders of magnitude and refer to planned full-year gross impacts

Consistency on spending/revenue breakdown remains in place

Budgets 08 - 12 Budget 2013

Expenditure 65% 65%

Revenues 35% 35%

Source: Department of Finance

Spending/Revenue breakdown

Fiscal Adjustments to Date

Budgetary policy over ’08-’12 has, in its totality, been clearly progressive; the largest reductions in income have been on those with highest incomes

Impact of Budgets 2008-2012 by Income Decile (% of Income)

-14

-12

-10

-8

-6

-4

-2

0Bottom 2nd 3rd 4th 5th 6th 7th 8th 9th Top

Source: ESRI

%

…but Budget 2013 PRSI change is regressive

Gross Income 2008 (low point) 2012 201330,000 12.9 16.8 17.7 0.9 4.860,000 27.5 33.4 33.9 0.5 6.4

120,000 35.4 42.7 42.9 0.2 7.5

Gross Income 2008 (low point) 2012 201330,000 5.1 8.6 9.5 0.9 4.460,000 19.8 26.2 26.6 0.4 6.8

120,000 31.6 39.1 39.3 0.2 7.7


Married Couple, 1 Incomes, 2 Children, Private SectorChange 2012 vs.

2013Change 2008 vs.

2013

Average Tax Rate (%)

Single, No Children, Private SectorChange 2012 vs.

2013Change 2008 vs.

2013

The public finances are showing improvement; the underlying deficit ex interest payments has halved since ‘09…

General Government Primary Balance, Eur bn(ex Banking Costs)

-20

-15

-10

-5

-

5

10

2006

2007

2008

2009

2010

2011

2012

f

Source: Ecowin, UB, Department of Finance

…helped by now-improving revenues…

General Government Revenue, Eur bn

50

55

60

65

70

2006

2007

2008

2009

2010

2011

2012


up Eur1bn from '10 low

Exchequer Tax Revenue, €m

20,000

25,000

30,000

35,000

40,000

45,000

50,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012e

Note: 2011 figures incorporate the reclassification of health levy receipts into the Universal Social Charge. Excluding this effect, tax revenues were still up in 2011, but by 0.8% y/y rather than the headline increase of 7.2%

Non-interest spending is down ca 15% (Eur11 bn) from the 2008 peak

General Government Primary Spending, Eur bn(ex Banking Costs)

-

10

20

30

40

50

60

70

80

2006

2007

2008

2009

2010

2011

2012

Source: Ecowin, UB, Department of Finance, UB

down Eur11bn since '08

Overall fiscal position ahead of EU/IMF targets for over 2 years…

EU/IMF Programme Primary Balance Targets: Performance vs. Benchmark

-25

-20

-15

-10

-5

0

Dec-1

0

Mar

-11

Jun-

11

Sep-1

1

Dec-1

1

Mar

-12

Jun-

12

Sep-1

2

IMF Target Actual

2012 has seen a further significant improvement in investor perceptions of the country’s creditworthiness…

8-Yr Govt Bond Yields

2

4

6

8

10

12

14

16

18

Mar

-10

Jun-

10

Sep-1

0

Dec-1

0

Mar

-11

Jun-

11

Sep-1

1

Dec-1

1

Mar

-12

Jun-

12

Sep-1

2

Dec-1

2

%

Source: Bloomberg

…with the EU/IMF programme providing cheap funding for over Eur55bn of borrowing

Govt Bond Yields vs. EU/IMF Lending Rates

02468

1012141618

Jan-

11

Mar

-11

May

-11

Jul-1

1

Sep-1

1

Nov-1

1

Jan-

12

Mar

-12

May

-12

Jul-1

2

Sep-1

2

Nov-1

2

9yr yield avg yield since Jan '11 Original EU/IMF Lending Rate rate at May '12 Latest (Nov '12)

%

Source: Bloomberg, NTMA

Notes: as at end Oct 12, Eur55.3bn of total available Eur67.5bn was drawn down with avg weighted loan life of 10.4 years

Even after the major effort thus far, deficit remains very large, more needs to be done to get to deficit to 3% target by 2015

General Government Deficit as % GDP

-35

-30

-25

-20

-15

-10

-5

0

5

2004

2005

2006

2007

2008

2009

2010

2011

2012

f

2013

f

2014

f

2015

f

3% Stability and Growth Pact Limit


Underlying deficit

Deficit inclusive of banking sector costs

…€5bn of further adjustment to come in ’14 and ‘15

Fiscal Consolidation Estimates and Breakdown 2014 - 2015

2014 2015 Total % of Total

Spending 2.0 1.3 3.3 65

Current 1.9 1.3 3.2 63

Capital 0.1 0 0.1 2

Tax / PRSI 1.1 0.7 1.8 35

Total 3.1 2.0 5.1 100


Prospective fiscal drag remains considerable but is easing

Planned Gross Annual Fiscal Consolidation to 2015, Eur bn

0

1

2

3

4

5

6

7

8

2009 2010 2011 2012 2013f 2014f 2015f

Source: NTMA

PlannedImplemented / announced

PMIs indicate Ireland’s traded sectors are outperforming the wider euro zone, not just other ‘vulnerable countries’

25

30

35

40

45

50

55

60

65

Manufacturing PMIs: Ireland vs. IT/Gre/Sp

Ireland Italy Greece Spain

Source: Markit

30

35

40

45

50

55

60

65

Composite* PMIs: Ireland vs. Eurozone

EZ Ireland

Source: Markit, * Manufacturing and Services, 3m avg

The private sector, not fiscal policy, holds the key to Irish recovery; the latest jobs trends offer much encouragement

Breakdown of Employment, annual change (000s)

-200

-150

-100

-50

0

50

Mar

-09

Jun-0

9

Sep-0

9

Dec-0

9

Mar

-10

Jun-

10

Sep-1

0

Dec-1

0

Mar

-11

Jun-

11

Sep-1

1

Dec-1

1

Mar

-12

Jun-

12

Sep-1

2

Private Employees Public Employees Self Emp

Source: CSO, UB estimates

Slide 18

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19

Brian Harvey

The Wheel

Dublin, 13th December 2012

[email protected]

20

Our benchmark

21

Government spendDown this year -2.3%Overall, down -4.3% since 2008Voluntary and community

sector down -8% to -10% each year

22

First, social impactMaintenance of basic social welfare rates, but

changes around them have cumulative effectWelfare rates put are close to poverty line

Above for older people, below for unemployedPoverty began to rise again 2009

This year’s changes:Child benefit down to €130Jobseeker benefit reduced to 6 to 9 monthsTelephone & household benefitsOther smaller changes but cumulatively

important

23

Second, impacts on V&C sector►Environment, Community, Local

Development►LCDP down €6m 2013 to €48.4m►That is -10.9%►Overall reduction is -42%

►If it had been reduced in line with government spending, then it would be €81.1m (over)

►Housing down -15%, where 34% of housing is provided by voluntary housing

24

LCDP funding

2008-2013This is a programme targeted at disadvantaged groups and communities

25

Headlines (1)►Justice & Equality

► Department up +2.8%► Equality down -20%

►Education & Skills► Down -0.4%► National Education Psychological Service -2%► FAS training for unemployed -4%

►Development aid► Poverty & hunger reduction -3%

►Tourism, Transport & Sport► Sports -6% (but more, due to underspend 2012)

26

Headlines (2)►Arts, Heritage, Gaeltacht

► Arts, culture & film, -5% (Arts Council is half)

►Health► Largest funder of voluntary organizations► Main head is -2% (but includes all voluntaries)► Other funding for HSE -1% to -2%

►Youth► €58.3m to €52.9m in 2013, €49.9m in 2013►Down -9.2%, -5.6%►Most is for disadvantaged youth projects►Counselling -12%, FRCs -5%

27

Social Protection funding►Community employment €335 to €351m►Tus €65m to €96m►Job Bridge €54 to €81m►Community services €45.4m to €46m

►The only good news, counter-trend.

28

Analysis, conclusions (1)Level of fall in government spending is small, less

than 1% a year since economic & social crisis brokePattern of disproportionately reducing funding for

voluntary, community organizations unaffectedLess in health, more in community (-42% LCDP overall)

2013 has notable reductions in:LCDP, 10.9%Youth, -9.2%, -5.6%, at a time of 30% youth unemploymentEquality, -20%, with inequality growingHousing, -15%, lists got longer every year since 1987Training for unemployed, -4%, with 14% unemploymentSport, -6%, despite known health benefitsFRCs -5%, counselling -12%. No explanation for any of these.

29

Analysis, conclusions (2)Impact on spatial poverty greater than generic

poverty: targeting of disadvantaged communitiesNon-core reductions for those on welfare have

cumulative effect for those near or already below poverty line

Reduced resources for disadvantaged - and those who work with them

Reinforces a now well-established cycle of immizerization.

Thank you for your attention!

Presentation (simon barry & brian harvey) slides

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