Monthly Economic Digest - Dr Peter Stafford

Taxation

Figures released by the Central Statistics Office, the Department of Finance and the Department of the Environment in March show that both tax income and public spending are continuing to fall.

A total of €2.5bn of tax was collected by the Exchequer in March 2010, roughly in line with similar receipts for March 2009, and close to the Department of Finance projection for the month made in December's Budget speech. So far, in the first quarter of 2010, the Exchequer has collected €7.2bn in tax - the equivalent figure for the first quarter of 2009 was €8.5bn, reflecting the continued low levels of economic activity.

One of the most striking examples of declining tax receipts is in the area of Stamp Duty. Only €39m was collected from property transaction taxes in March of this year - Stamp Duty in March 2008 was €157m, reflecting both the decline in house prices and lower volumes of property transactions over the last two years. Only €141m has been collected so far in 2010. In the first quarter of 2007, which was the peak of the property market, close to one billion euro had been received by the exchequer. With predictions for further declines in residential and commercial property, it will be worth monitoring Stamp Duty receipts closely during what should be the peak house buying season.

Capital Gains Tax, VAT, Income Tax and Corporation Tax receipts are all down compared to previous years. For example, Corporation Tax receipts in March were €13m - in March 2009, they were €51m. These taxes from economic activity reflect the poor start to the year in terms of investor sentiment and perhaps difficulties for private firms to secure credit to facilitate business activity.

Changes to taxation made in the December 2009 Budget have not yet fully trickled through into Exchequer receipts so a direct comparison with previous years is not possible, but the figures released for the first quarter of 2010 do show the impact of falling investment, employment and day to day spending.

Capital Spending

Declines in Exchequer income is having an immediate impact on spending by government departments and agencies. In the Budget, the Minister for Finance outlined severe cuts to the public investment programmes, and figures released by the Department in March show the departmental implications of those cuts in terms of investment over the first quarter of 2010.

The published monthly investment profile for each government department can be compared to the actual outturn. By doing so, we can assess how far the cuts have been made. For example, the March 2010 capital investment profile for the Department of Enterprise, trade and Employment was €73m but actual turnout for the month was €46m, a shortfall of €27m or 37%. While most departments are - roughly - on profile after three months of the year, there are examples of large scale under spending in Social and Family Affairs (down 66.7%), Foreign Affairs (down 66%), and Environment, Heritage and Local Government (down 22.5%). These three departments are not large capital spenders - indeed, the profile for Foreign Affairs was only €3m out of a total budget of €1.123billion. Nonetheless, total capital underspend to the end of the first quarter of 2010 was some 8.8%

Employment

Employment in Ireland has continued to fall from its peak in 2005 and 2006. at the height of the Celtic Tiger, unemployment was roughly 4.3% which is usually understood to mean full employment. However, since the start of 2008, unemployment has begun to increase, gathering pace as the domestic and global economy slipped.

In March 2010, the number of people on the Live Register reached 435,000 which is an all-time high. The Live Register figures have hovered around that level since last August. The unemployment rate is 13.4%. The Live Register and the unemployment rate are not totally synonymous, but they do generally tell the same story. One remarkable point is that the last time unemployment reached 13.4% was in November 1990. At the time, 232,000 people were on the Live Register - today's figure is some 200,000 more, demonstrating the growth in the labourforce and the population as a whole.

By far the largest decline in employment has been in the construction sector which has seen its workforce fall by 131,500 from around 268,000 in the first quarter of 2008 to 136,000 at the end of 2009. Overall employment has slipped from 2.1 million to 1.8 million, with losses in most sectors, including Administration (-20,500), Agriculture (-22,200) and wholesale and retail (-41,300). 2008 and 2009 did see some growth in education (+15,300), health (+16,100) and Finance (+1,300), but overall private sector employment has been general across all industries.

Roughly 86% of the workforce are Irish nationals. This has remained unchanged over the last two years, despite the growth (then decline) in employment. The largest decline in employment has been amongst citizens of the European Union "Accession States" which have declined in numbers from 144,400 in the fourth quarter of 2008 to 114,000 in the fourth quarter of 2009, the last quarter for which data is available.

Access to more information on these datasets is available to subscribers of my website http://peterstafford.ie.