Irish Economy and Budget Watch / / /Emergency Budget Announced for April 7th

youngdan wrote:

I do not get 62 billion anyplace. It is EVM who is talking about 62 billion and I tell him it is just in some fool's head.

I consider my projection to be very much closer to the eventual numbers than some lug in the department of finance.

I expect tax revenues 2009 will be about 30 billion and would not be surprised if it were worse. The idea that it will equal 2008 at 42 billion is pie in the sky and is the game of catch up that they have been playing. They are 3 months behind a falling revinue curve and Brutan is correctly saying that the recent budget is out of date and should be tossed.

The idea that extra money can be brought in by raising taxes is insane. Everybody is broke and corporations are already folding up. The blood has already been drained from these two turnips.

Drastic action could have been taken to save waterford glass and if Dell goes it is curtains.

I do not expect any new thinking.


I see where this week the government are to borrow 3 billion. I am assuming it is not by public auction but correct me if I am wrong.

a) Income at 42 billion will not be the same as ‘08 which was 44 billion, but 5% down.

b) Raising taxes is far from insane. People are not spending because they feel insecure not because they have no money, for 95% of people nothing has changed, they still have the same income they had, they’re just not spending it. Strong action by the Government, even on taxes, will not only being in extra cash, which we simply have to have, but I think will also help to restore some confidence. On the corporate side, some companies are in trouble, but that’s happening anyway and going from 12.5% to 14% on profits won’t send anyone over the edge.

c) Drastic action to save Waterford is a nonsense, which even you don’t believe, you’re just using that as something to say. Waterford is a company like any other, it can either stand on its own or it’s no use to anyone. As for Dell, you'd hope for the best, but whatever happens, happens. Either way Dan, the country won't be giving up anytime soon.

youngdan

The NTMA, according to the SBP, http://www.thepost.ie/story/?jp=mhidojgbgb should move quickly to get some bonds auctioned even though our debt is more expensive than that of other places. I've a feeling the ECB will start printing soon even though they say they won't. They could end up buying our bonds with certain conditions attached ....

tonys
the raising of the corporation rate was due about 4 years ago - is it not too late now and would it not scare off the business? Why don't ye start listening to Sinn Fein a bit more - a lot of what they wanted in their manifesto last time seems to be coming true against all our wills.

It's time for a freeze in the civil service then? Áine Lawlor was just on Morning Ireland pressing Lenihan about a pay cut there but he wouldn't give in but said it wasn't off the cards. Would it not be a strike-inducing exercise if they do make cuts?

Is there any more money to be squeezed out of Europe do ye know? I'm sure they've plenty of grants we could be using. We'd need to get our shit together though, they're strict and demanding.

You say strong action by the government will bring in new cash "which we simply have to have" is the mindset that is fatal. What the government wants has no bearing on reality at all. Reality is what the government will have available and spending less than that sum.

The tax figure for last year if my memory is correct is 42 billion. Forget about a 5% contraction as even Lenehan now says the economy is to shrink by 4%. Take a figure of 30 billion income and bring in a budget based on that.

It is the perception that the government is not able to handle the task that is damaging.

Bring in the harsh budget, ask FG to support it for the good of the country, call their bluff because they won't want the hot potato
and everyone knows it, they are just making political hay. If the government falls so what because it is better to fall being right than be ran out of power for being wrong.

Audi, that guy is exactly right, whatever borrowing has to be done should be done immediately as the market is about to sour and the relative strenght of Irish bonds in that market is going to fall as well.

According to Finfacts today, the NTMA already HAS most of the money it will need this year

http://www.finfacts.ie/irishfinancenews/article_1015608.shtml

Appears they got the bonds out ahead of time.

Time to panic next year.... although, if the property market keeps on going down, is it possible a few extra first time buyers might bump up the amount of Stamp Duty?? From peak selling prices to asking prices now, 3 beds on our estate are already down at least 30% (probably an underestimate). Add that to lower interest rates....there's got to be a lot of pent up demand out there, I know 2-3 potential movers who are sitting on their hands waiting for "the bottom"....sooner or later, they'll decide a 2 bed is too small for 4 people, if you see what I mean. Can't help wondering if there'll be a bit of a bounce when people reckon it's over. Not back to boomtime though, not by any means.

Youngdan, our debt is 41% GDP while the NTMA and the NPRF hold 20% GDP.... while the deficit needs to be reined in, we ain't dead yet.

if we pass Lisbon, it is possible the EU could do something for us?? Help with the NDP for example??

That mentality is even more scary than the ostrich approach. You are falling right into the trap of voting for Lisbon in the hopes for a handout.

Do you still believe in the tooth fairy. Where does the hand out cash come from.

I reckon they'll print it youngdan, but they won't give it away lightly - we'll be singing for our supper.

Well it seems that there is about 3 million eunocks ready to warble

https://www.youtube.com/watch?v=mC-k27Kvtrw&feature=related

Don't get your point dan but I'll reply to it with a eunuch from the other side of the planet again. "Buy my t-shirts" is the upshot of this I suppose

https://www.youtube.com/watch?v=1ORrXIRuCyY

What the Hell was that thing. Was it a shemale. Had a bit of a moustach. Am I still on the weather thread

More bad news. IBM has a production facility in Mulhuddert.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aXFIXifapQeE

Slim Buddha wrote:

More bad news. IBM has a production facility in Mulhuddert.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aXFIXifapQeE

Is it manufacturing in Mulhuddert? I think they make some chips there.

The CSO stats for December's unemployment figures aren't out yet but they should be found here
http://www.cso.ie/statistics/sasunemprates.htm

The yearly average unemployment should have shot up this year to at least 7.8% from a yearly average of 4.6% since 2002 if December had the same unemployment level as November. eek.

Auditor #9 wrote:

The yearly average unemployment should have shot up this year to at least 7.8% from a yearly average of 4.6% since 2002 if December had the same unemployment level as November. eek.

The unemployment rate has risen, but the Economist published a chart based on an OECD report putting our structural unemployment at 4.7% which is one of the lowest in the same organisation. The difference between the actual and the underlying unemployment in the economy illustrates how much slack there is in the economy. It'd be a great time for a stimulus as the slack existent will ensure that it would not be inflationary.

According to RTE the government now says they expect tax revenues of 37 billion so ye can forget about the 42 billion figure.

This is still way too high and I expect 30 billion with a possibility of much worse

youngdan wrote:

According to RTE the government now says they expect tax revenues of 37 billion so ye can forget about the 42 billion figure.

This is still way too high and I expect 30 billion with a possibility of much worse

Unemployment could continue to rise at the rate it has been - 10k-15k+ per month so that's obviously a higher social welfare bill on one side and falling tax takes on the other. I couldn't begin to calculate how much though. 200 quid a week dole to be paid out for each person who at the same time are not paying tax of X.

Vat will probably continue to fall as a result of that. Your guesses have turned out to be horribly true-ish so far youngdan but I hope you're very wrong about this one.

I think the answer will lie in what happens internationally and, in turn, much of that will hinge on the actions of Barack Obama and the Sterling Exchange rate. My suspicion is that the UK government might be happier with a rate around 80p to the Euro, which is where I think that rate is headed right now. I also expect a dollar bounce after Inauguration Day, which may last if Obama does well and there are no more Lehman sized disasters. I also doubt we are the worst Eurozone basket case, and given the state the car industry is in, i fully expect the German deficit to look like a disaster zone by about March. Ditto their unemployment figures

That won't do the Euro any good, but will help our exporters

Anudder bit of good news, if I may; the Iseq is beginning to look more stable. This may mean a return of some semblance of sanity to the financial services industry.

Finally, whether they like it or not, the ECB will have to reduce rates. No matter what the difference between our bonds and the Germans, this will still make borrowing cheap.

I think we just have to pray for no more huge corporate bankruptcies.

Finally, todays IT featured some EU industry type bureaucrat begging the Government to apply for a grant to help with the Dell redundancies

Anyone else think salvation might come with a yes vote, or is it just me???

On the other hand, if Obama lives down to Youndan's expectations, the UK economy tanks faster than the German one and we vote No to Lisbon, I suspect it will be game over, man

According to kerrynorth on the Pin forum, the Irish Times also has this story




But at a conference of 200 economists organised by the UCD business school yesterday Mr McCarthy said the state also had to find additional income. He said if nothing changes the country’s borrowing requirement would linger at 10% of GDP for a number of years.

He warned if the Government bowed to pressure for a stimulus package it would deepen our reliance on debt.

Prof Philip Lane, of the Trinity school of economics, speaking at the conference, revealed the results of an as yet unpublished study on the effects of government financial intervention. This found whenever the state pumped cash into capital projects it has had an obvious positive impact.

However, in times when money was channelled into the public sector wage bill it recorded a negative impact across the board. He said pay cuts were a necessary evil if the Government was to increase the attractiveness of exports.

However, trade unions continued to bunker down in preparation for a battle against pay cuts with SIPTU suggesting it would lead a campaign against them.
In response Prof Lane said not only should salaries be cut but Finance Minister Brian Lenihan also had to get workers with low wages back paying income tax. http://www.examiner.ie/story/Ireland/idkfidcwmh/rss2/
___________________________________________________

The Pin thread is an informative discussion on it - they believe a house tax could be in the order of €500 - €1500 annually like in the U.K.

Will this help to sort it out ? The lads over there reckon the Civil Servants are just going to be told they are taking a pay cut without negotiation... rumour or some truth behind it ? The gathering of economists at UCD must have scared the shit out of FF. I'm not surprised if massive social welfare rollbacks come out of this too among other cuts to services.

Someone on the Pin reckons there'll be riots others believe it will be the end of FF for a generation. Could this be a throwing in the towel move by FF ? There's no way in hell they'll have a pleasant or effective term for what's left of it - the problem is too big. The country needs to go into Emergency mode perhaps and I don't think FF do emergency mode too well.

Are they capitulating ?

Thet are facing reality which is more than can be said for the majority on this site

Public wages going to get cut and mortgages staying up ... ? Slaughterhouse stuff. Mortgages would have to be doctored someway as well ...


Pin poster's assessment of the UCD conference:

an tUsail wrote:

I went to this. Quick summary and assessment - as best I can remember if anyone is interested.

14.20 Session 1: Fiscal Consolidation
Chair: John Fitz Gerald (ESRI)
Woolly headed literally and figuratively as session chair. Genuinely didn't appear to know the difference between GDP and GNP.

Philip Lane (TCD): Fiscal Policy Options in the Euro Area
Ok talk. Basically said the stability and growth pact can be forgotten about for 5 years and that we will face very little external pressure to correct our finances.
Presented some of his research results (no model though) - to show that increasing government expenditure has a negative multiplier effect on overall economic activity.
He tried to motivate Public sector wage cuts from this perspective.

Ciaran O’Hagan (SocGen Paris): How Much Can Small Sovereigns Borrow?
Polished presentation style - archetypal embodiment of suave investment banker type. (actually I think he said he was a bond analyst)
Interesting presentation with some technical detail. Looked at spreads, AAA ratings for sovereigns versus companies.
Basically said that we can borrow as much as we want and that there is no real limit on potential borrowings (given that wholesale funding was available)
Also said that tomorrow (Tuesday), Greece is issuing 40 billion or so of T-bills and that it is critical that this issue is taken up.
Mentioned this issue a few times as a general indicator of health of debt markets.
Finished by saying he was worried though - reckoned we could only withstand 1 systemic shock and then domino effect might kick in.
(I could see Jack O'Connor from where I was sitting. At times he shuddered involuntarily during this presentation when this investment banker
suggested privatisation, sovereign debts, etc !)

Colm McCarthy (UCD): Expenditure Control and Fiscal Consolidation
Very interesting presentation.
Synopsis - cuts are coming. Presented a chart showing that government spending grew by 6% in 2008 and is currently(as per budget forecast) growing at 6% in 2009.
This was the real rate of growth relative to economy shrinking. Basically said it is premature of people to complain about cuts in spending, given that there haven't been any - yet. Also presented a slide showing that at no stage in the 80's was there negative spending growth. Talked about critical need for sustainability in state finances and rubbished the notion that we have flexibility to borrow given spurious debt to GDP ratios.

Discussant: Karl Whelan (UCD)
Quite poor. Showed outdated data from OECD report re public sector pay and conditions. (I have posted a comment about this is the past)
Said that relative to OECD average we don't have an excess spend and even a 10% cut in a 20 billion public wage bill will only reduce deficit from 19 to 17 billion.
Marc Coleman challenged him very strongly about this. He called him economically illiterate for not understanding Ireland's GDP/GNP differential!
Fitzgerald piped in here to say there was no real difference in using GDP or GNP in assessing relative public sector spends. He was put straight on this very quickly.

Funny moment when at the very end of this session McCarthy was asked to comment on points raised by O' Hagan and Whelan.
He said "Who actually wants to find out how much we can borrow ? And yes 10% of 20 billion is 2 billion". He put these guys in their place very quickly.

Coffee at 15.45

16.00 Session 2: The Property Bubble and the Banking Crisis
Chair: Brendan Walsh (UCD)
Patrick Honohan (TCD): Resolving the Banking Crisis
Honohan wasn't there and Brendan Walsh read his paper instead.
This was a public reading of a paper rather than a presentation. Ran overtime and not that memorable.
Few here would disagree with anything he said. Criticised lax lending policies, poor regulation, etc
He said that the bailout was due to a bank actually failing to roll over its debt.
I didn't know Anglo had actually failed to secure credit lines that day.(If this is what he meant)
Mentioned something at the end that social welfare largesse rather than debt forgiveness was the preferable solution for individuals indebted and in trouble. (Caveat - I could have misheard this)

Morgan Kelly (UCD): The Irish Property Bubble and its Consequences
Very energetic, lively and passionate presentation. I can confirm that he name-checked the pin very explicitly.
He was saying that the amateurs got it right! This was good stuff for a pin audience, passion, anger and compelling if very pessimistic assessment of the situation.
He painted a very bleak picture of where we are going.
Key points as I can recall:
Expects house prices to fall by up to 80% from peak.
Showed quite nicely using ( using a metric called Tobin's Q - as I recall) the massive over-valuation in house prices.
Showed some stats about the growth and recomposition of bank lending in response to and adaptation to house price growth.
(Can't remember the metric used - I think the effect he was trying to show was how lending growth and price increases fed each other)
Mentioned ghost estates, the need to demolish large tracts of housing that would never be sold - at any price.
Commented on the lack of formal education of a large sector of the construction related work-force.

From an analysis of previous North-American housing bubble/busts and attendant bank loses, he extrapolated a 20% estimate for bad debts on a bank loan book.
(as best I can remember) Now he got personal and said that in our case in could actually be much higher given the behaviour of Anglo and Irish Nationwide.
I'm trying to be accurate here. He said we needed to realise the damage that we were doing to our reputation internationally. He said that in the past we were portrayed as a "bunch of feckless Micks ruled by priests and gombeen men", but that we had in the 90's and early part of 2000's shown that we were moderately capable people, who business could be done with. But that the actions of gombeens like Fitzpatrick and Quinn and the incompetence of Cowen were destroying our reputation and that there is a real cost to this.
At some point he was challenged by an audience member (very possibly VI type) that it was irresponsible to say such things, that he was ignoring the international dimension to the crisis, thats the banks had been shown to be adequately capitalised by independent auditors, etc (he seriously said this )
Kelly rubbished this (seemed genuinely annoyed now) and said the particular auditing firm (he named them - of course) should be ashamed of themselves and said international auditors/forensic accounts should have been sent in - that the only reason ___ were used is because the bank told them in advance what they wanted the report to say and that the firm had a reputation for signing off as they were told.

Summed up by saying we are screwed. Got a great reaction from audience. Even Jack O'Connor paid very close attention to what he was saying.

Robbie Kelleher (Davy): Bank Solvency, Basle II and Accounting Standards
Wasn't expecting a huge amount here, but this was very good. Very cogent and well presented. I was surprised by the honesty/independence of the assessment.
Made some good points about the dangers of the IFRS bad debt provision change in 2005/6 (effectively prevented banks from making precautionary provisions against suspected bad debts) and how this contributed to Bradford and Bingly, Northern Rock and a few other genius financials blowing themselves up.
Provided a sobering view of the inadequacy of BOI and AIB bad debt provisions as they currently stand. I know Davy's cheerleaded the boom (management buyout at the peak and all), but this was a balanced and informative talk.

Discussant: Alan Ahearne (NUI Galway)
Short and informative finish to afternoon. Showed (on the basis of examining 40 or so previous OECD housing bubbles) that the general cycle is 20 quarters of sharply increasing prices prior to peak followed by 20 quarters of sharply correcting prices. Extracting therefore to the maximum low in house prices being reached around the end of 2011.
Showed very convincingly (think it was him anyway) that the tax base has been eroded to the extend that the average Irish family (esp low earners) pay a lot less tax than our Eurozone counterparts. Pointed out that it might make sense to replace stamp duty with property tax, raise higher rate, etc

Ok thats it. Rather longer post than I intended.
I have insomnia these nights...by way of explanation.

http://www.thepropertypin.com/viewtopic.php?p=184737#p184737

Thanks to you and tUsail for that Auditor #9 - I saw a report on the news last night on this and was wondering what was said. This is interesting and I've seen reference to it before.

Quote :

IFRS bad debt provision change in 2005/6 (effectively prevented banks from making precautionary provisions against suspected bad debts)

It seems that international changes in banking practice directly fuelled our present unprecedented situation viz financial and property crises hand in hand.

These changes a la Greenspan were a response to the decline in the US economy's productivity mainly, I think, as well as the rise of the liberal right. Other views on this?

P.S, It is frightening if Fitzgerald and others there did not understand the difference between GNP and GDP. The ESRI did a poor job in the last five years imo with that "soft landing" line.

Link: Morgan Kelly Forescasts 80% drop in house prices - Irish Times

LINK - Union Leader warns IMF could enforce public sector redundancies - RTE

Zhou_Enlai wrote:

Link: Morgan Kelly Forescasts 80% drop in house prices - Irish Times

LINK - Union Leader warns IMF could enforce public sector redundancies - RTE

Looking to scare the members?

The Union leaders have had a soft life over the last ten years. Things are likely to get more demanding now.

I see it as a positive development and an indication that the Givernment's policy of working with the social partners and not dictating to them may reap dividends.

If the Union leaders believe cuts are justified then it can only be because they see the alternative as worse. If that is the case then they need to communicate to their members the disaster that could befall us if we do not get our house in order.

Margan Kelly's suggestion that the global crash may have saved us from ourselves is interesting. I think things were slowing down a lot last year in any event though. His suggestion that a disaster of Icelandic proportion could yet befall us is very scary.

From the Morgan Kelly link above

Quote :

Recovery will be slow: “It has taken us 10 years to get into this situation – it will in all likelihood take us 10 years to get out of it.”

A quick look at the likes of personal financial website like Ask About Money shows that people themselves guess they will be finally liquid in about 10 years - Another Debt Disaster

And they are often civil servants paying excruciating mortgages and burdened with irresponsibly high levels of personal debt who are about to have to undergo a pay cut. Swings and arrow or swings and roundabouts ? For every action there is an equal and opposite reaction. How we didn't pay attention to the consequences of the physics of economics with regards to house building and furnishing on such a scale in such an economy will never become a lesson I suppose.

We're cornered between the stools of cuts, stimulation of an economy, credit crunched consumers, conservation of scare resources, negotiation around policies which would impinge on those scare resources through stimulation by depleting them and inflating their price, low morale, the impossibility of emigration ...

No wonder I'm watching snooker - there's snookering going on all around the place, time to get used to it. A mr. Gerrity on Morning Ireland this morning was talking about application of the public pay cuts and brought up the point that our whole society needs to be involved in the solution. If only that gets entertained but again they'll look at one sector when it's the whole we need to try to look at.

Words of warning from James Joyce - "An Irishman's house is his coffin".

I'm not sure I'd entirely agree with Morgan Kelly. In what way is our property bubble soo much worse than the UK's?? Or the US, or Spain?? Frankly, if he could achieve some predictions for these countries as well by comparison, I would be more interested in hearing him. By my estimation, house prices need to fall 55% from peak to bring them back within the realms of the couple who are both on todays average industrial wage. They have already fallen about 30%. Falls may overshoot, but I doubt they would overshoot for too long; people would realise there were bargains to be had. At least for stuff with good amenities/public transport.

As for wage cuts, I'm not sure I'm for them. They would remove vast amounts of spending money from the economy, and, note, these are going to be the only people spending as they have permanent jobs. I would suspect that an agreed pay FREEZE for 3 years and a radical expansion of the income tax base might achieve the same effect. Pay cuts have a spectacularly negative effect psychologically, just what we DON'T need right now

Finally, re property taxes, can I suggest taxing by square footage and/or energy efficiency rather than by price?? price is a little difficult to assess right now. There has to be some exemption for those on fixed incomes (pensioners etc) or those with unmortgaged houses who end up on social welfare. The council tax in the UK was very hard on those with fixed incomes and went up arbitrarily depending on how broke the council was. Find someone elses property tax model, NOT THAT ONE!!!

Expat girl, the problem with a pay freeze is that the current pay arrangement is unsustainable. You are quite correct that a reduction in pay will result in spendable income being removed from the economy. However, it is much more favourable than pay cuts which will likely result in many more people defaulting on loans etc. There is no easy way out of this situation but frankly pay cuts are much more favourable than the other option. The most important thing in a situation like this is the preservation of jobs.