Download - ICAI Practice Day Presentation
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CSCA – Annual Practice Day Conference
“Ireland – From Poorest of the Rich to Europe’s Shining Light –
But What’s Next?” Seamus Coffey, Dept of Economics, UCC
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Explaining The Tiger
Distinguish between pre-boom factors:
1. Foreign direct investment.– Industrial policy– Corporation tax
2. External assistance.
3. Investment in education.
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Explaining The Tiger
And factors that combined to ignite the boom:
4. Centralised wage bargaining.
5. Fiscal policy.
6. Upturn in World (US) economy.
7. Achieving EMU entry criteria.
8. Exchange rate policy.
9. Small is beautiful.
10. ????
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Are we all out of luck?
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Sub-Prime Crisis
• Ninja Loans => Rising Defaults
• Transmission Mechanism
– Collaterised Debt Obligations (CDOs)
– Credit Default Swaps (CDSs)
– The US is paying for the same mortgage three times!
Bail out of Wall Street
Bail out of the Insurers (AIG)
Proposed bail-out of homeowners
– Crisis of Confidence => Risk Premium Increase
– Treasuries & Gold Price up
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Iceland and Ireland
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Country Vulnerability Scorecard
Government Debt/GDP
Private Sector
Debt/GDP
Bank Loans/ Deposits
Banking Assets/ GDP
Credit Rating
1. Iceland 122% 435% 204% 1002% BBB-
9. UK 64% 187% 187% 400% AAA
10. US 78% 227% 227% 161% AAA
11. Ireland 41% 186% 186% 266% AAA
37. China 19% 123% 60% 126% A+
Source: Credit Suisse Global Equity Strategy
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The Public Finances
Source: Dept of Finance
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The Public Finances
Source: www.irisheconomy.ie
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Source: Goodbody Stockbrokers
Built on Construction
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Source: Goodbody Stockbrokers
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Making Forecasts
The following are four estimates for the revenue from Stamp Duty in 2008.
• €3.055 billion – Budget 2006
• €4.125 billion – Budget 2007
• €2.855 billion – Budget 2008
• €1.780 billion – Budget 2009
These are all estimates of what should be the same figure!
The forecast from Budget 2008 was still 73% above the actual figure for 2008 of €1.650 billion..
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Jan-Dec 2007 Jan-Dec 2008
Value Added Tax
Income Tax
Excise
Stamps
Corporation Tax
Capital Gains Tax
Customs
Training & Employment Levy
Unallocated
14,496,588
13,572,410
5,837,878
3,185,602
6,390,625
3,105,495
265,904
2,501
0
13,429,602
13,176,857
5,443,338
1,650,792
5,065,894
1,430,080
248,001
1,032
0
Total 47,249,352 40,777,196
Tax Revenue
Source: Dept of Finance
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Expenditure
Vote or Group of Votes 2007 2008
Health & Children 12,448,835 13,745,317
Social & Family Affairs 8,180,934 9,399,098
Education & Science 8,443,974 9,031,516
Other 15,534,992 17,136,863
Total 44,608,735 49,312,794
Source: Dept of Finance
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The Public Finances
The 2008 outturn and five year projected figures for the General Government Balance in millions are (with % of GDP in brackets)
2008: -€11,796 (-6.3%) 2009: -€17,165 (-9.5%)2010: -€16,271 (-9.0%)2011: -€12,092 (-6.4%)2012: -€9,443 (-4.8%)2013: -€5,537 (-2.6%)
The total shortfall over the six year period is €70 billion.
This is after annual “adjustments” of €16.5 billion have been achieved.
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The Public Finances
Here are the projected adjustments for each year. Note that the adjustment in one year is expected to carry over to all subsequent years.
2009: €2 billion
2010: €2 billion + €4 billion
2011: €2 billion + €4 billion + €4 billion
2012: €2 billion + €4 billion + €4 billion + €3.5 billion
2013: €2 billion + €4 billion + €4 billion + €3.5 billion + €3 billion
Add all these up and you get €48 billion on top of borrowing €70 billion. And we already need another €4.5 billion from the April mini-budget.
With planned expenditure of about €50 billion tax revenue will have to hold up in 2009. Based on the figures for the first two months of the year this may be as low as €30 billion!!
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Jan&Feb08 Jan&Feb09
Receipts
Tax Revenue
Non-Tax Revenue
Sinking Fund
Other Capital Receipts
Total
7,561,700
25,102
449,360
802,612
8,838,774
5,758,841
60,431
0
757,802
6,577,074
Expenditure
Voted
Sinking Fund
Non-Voted Current Expenditure
Non-Voted Capital Expenditure
Total
7,878,440
449,360
635,663
66
8,963,529
8,008,614
0
634,680
18,540
8,661,834
Exchequer Surplus (Deficit) (124,755) (2,084,760)
Exchequer Statement for Period Ended 31 December 2008, €000
Source: Dept of Finance
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Jan-Dec 2007 Jan-Dec 2008
Value Added Tax
Income Tax
Excise
Stamps
Corporation Tax
Capital Gains Tax
Customs
Training & Employment Levy
Unallocated
2,698,714
2,245,397
922,649
372,077
651,752
515,689
46,366
218
46,934
2,246,771
2,080,153
619,622
153,505
410,795
141,135
37,510
145
26,892
Total 7,561,700 5,758,941
Tax Revenue for Period Jan&Feb 2009, €000
Source: Dept of Finance
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Any Good News?
Source: Central Bank of Ireland