Two constraints: Deficit and Debt Two points: Revenue and Expenditure

1. The Continuing Constraints on
Ireland’s Public Finances
Seamus Coffey

4. Outline
Two Obvious Constraints:
1 The Deficit: Still Not Eliminated
2 The Debt: High but Falling
Two Points to Note:
1 Expenditure: We Spend Plenty
2 Revenue: 80% of CT from MNCs

5. -30
-20
-10
0
10
2001 2003 2005 2007 2009 2011 2013 2015 2017
Government
Balance, %GDP
economic-incentives.blogspot.com
Source: IMF, World Economic Outlook Database (Apr 2015)
Public Balance, %GDP, 2001-2014
Ireland: General Government Balance

6. -30
-20
-10
-3
10
2001 2003 2005 2007 2009 2011 2013 2015 2017
Government
Balance, %GDP
economic-incentives.blogspot.com
Source: IMF, World Economic Outlook Database (Apr 2015)
Public Balance, %GDP, 2001-2014
Ireland: General Government Balance

7. -30
-20
-10
0
10
2001 2003 2005 2007 2009 2011 2013 2015 2017
Government
Balance, %GDP
economic-incentives.blogspot.com
Source: IMF, World Economic Outlook Database (Apr 2015)
Public Balance, %GDP, 2001-2014, projections 2015-2018
Ireland: General Government Balance

8. 0
20
40
60
80
100
2001 2003 2005 2007 2009 2011 2013 2015 2017
Government Expenditure
Government Revenue
economic-incentives.blogspot.com
Source: IMF, World Economic Outlook Database (Apr 2015)
Annual government revenue and expenditure, €billion
Ireland: General Government Accounts

9. 0
20
40
60
80
100
2001 2003 2005 2007 2009 2011 2013 2015 2017
Adjusted Government Expenditure
Adjusted Government Revenue
economic-incentives.blogspot.com
Source: IMF, World Economic Outlook Database (Apr 2015) & Eurostat
Adjusted annual government revenue and expenditure, €billion
Ireland: General Government Accounts - Excluding Banking Measures

10. Non-Pay
Current
Expenditure
Pay and
Pensions
Expenditure
Capital
Expenditure
Total Voted
Expenditure
€bn €bn €bn €bn
2007 30.45 18.16 7.82 56.43
2008 34.05 19.34 9.01 62.40
2009 35.65 20.07 7.33 63.05
2010 35.40 18.78 6.38 60.56
2011 34.29 18.55 4.51 57.36
2012 33.71 18.44 3.81 55.96
2013 33.18 17.81 3.39 54.37
2014 32.76 17.72 3.47 53.95
Diff 09-14 -2.89 -2.35 -3.86 -9.10
Exchequer Spending

11. 0
20
40
60
80
100
2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
Adjusted Government Expenditure
Adjusted Government Revenue
economic-incentives.blogspot.com
Source: IMF World Economic Outlook (Oct 2015)
Adjusted Annual government revenue and expenditure, €billion
Ireland: General Government Accounts - Excluding Banking Measures

12. 0
20
40
60
80
100
2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
Adjusted Government Expenditure
Adjusted Government Revenue
economic-incentives.blogspot.com
Source: IMF World Economic Outlook (Oct 2015)
Adjusted Annual government revenue and expenditure, €billion
Ireland: General Government Accounts - Excluding Banking Measures

13. 0
20
40
60
80
100
120
1990 1995 2000 2005 2010 2015 2020
Gross Debt
economic-incentives.blogspot.com
Source: IMF World Economic Outlook, April 2015
General Government Debt, %GDP 1990-2014
Ireland: General Government Debt

14. 0
20
40
60
80
100
120
1990 1995 2000 2005 2010 2015 2020
Gross Debt
economic-incentives.blogspot.com
Source: IMF World Economic Outlook, April 2015
General Government Debt, %GDP 1990-2014, IMF Projections from 2015
Ireland: General Government Debt

15. 0
20
40
60
80
100
120
1990 1995 2000 2005 2010 2015 2020
Gross Debt
economic-incentives.blogspot.com
Source: IMF World Economic Outlook, April 2015
General Government Debt, %GDP 1990-2014, IMF Projections from 2015
Ireland: General Government Debt

16. 0
20
40
60
80
100
120
1990 1995 2000 2005 2010 2015 2020
Gross Debt
Net Debt
economic-incentives.blogspot.com
Source: IMF World Economic Outlook, April 2015
General Government Debt, %GDP 1990-2014, IMF Projections from 2015
Ireland: General Government Debt

22. Sector Corporation
Tax
% of CT
Paid
€million
A Agriculture, Forestry and Fishing 57 0.3%
B Mining & Quarrying 182 0.9%
C Manufacturing 7,349 35.9%
D Electricity, Gas, Steam & Air-Conditioning Supply 74 0.4%
E Water & Waste Management 35 0.2%
F Construction 395 1.9%
G Wholesale and Retail Trade 2,706 13.2%
H Transportation & Storage 260 1.3%
I Accommodation & Food Service Activities 148 0.7%
J Information and Communication 2,285 11.2%
K Financial & Insurance Activities 5,445 26.6%
L Real Estate Activities 207 1.0%
M Professional, Scientific & Technical activities 720 3.5%
N Administrative & Support Service Activities 379 1.9%
P Education 18 0.1%
Q Human Health & Social Work Activities 53 0.3%
R Arts, Entertainment and Recreation 90 0.4%
S Other Services 44 0.2%
Total Economy 20,457 100.0%
Corporation Tax Revenue 2008-2012

23. Contribution of US-owned Firms to the
Irish Economy*
Item 2008 2009 2010 2011 2012
€m €m €m €m €m
Production value 80,900 80,127 100,263 104,996 109,670
Purchases of goods & services purchased for
resale in the same condition as received
24,114 26,728 16,309 18,437 17,005
Turnover 104,875 106,750 116,330 123,181 126,876
Total purchases of goods & services (75,365) (78,043) (84,556) (88,013) (90,038)
Value added at factor cost 28,972 28,253 31,460 34,692 35,919
Personnel costs (5,841) (5,613) (5,938) (6,028) (6,176)
Gross operating surplus 23,131 22,641 25,522 28,664 29,742
Gross investment in tangible goods 2,635 1,837 2,103 2,930 5,314
Number of enterprises 750 741 803 933 858
Number of persons employed 104,132 94,155 97,811 99,589 99,525
Source: Eurostat
* Refers to the “business economy”

24. 0.75
0.85
0.94
0.96
0.97
0.97
0.97
0.98
0.98
0.98
0.98
0.99
0.99
0.99
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.01
1.02
1.02
1.02
1.04
1.04
0.00 0.25 0.50 0.75 1.00
GNi/GDP
Luxembourg
Ireland
Czech Rep.
Poland
Cyprus
Hungary
Lithuania
Estonia
Croatia
Bulgaria
Slovakia
Portugal
UK
Slovenia
Spain
Latvia
Italy
Greece
Malta
Romania
Austria
Finland
Belgium
France
Netherlands
Germany
Denmark
Sweden
Source: Eurostat
Ratio of Gross Domestic Product (GDP) to
Gross National Income(GNI), 2013
GNI/GDP Ratio

25. Implications
• Fiscal ratios should be assessed in terms of GNP.
• Limited impact on balance.
• Targets a slightly lower debt level in the long run.
• May slightly reduce fiscal space available under the
‘expenditure benchmark’.

26. Implications
• Fiscal ratios should be assessed in terms of GNP.
• Limited impact on balance.
• Targets a slightly lower debt level in the long run.
• May slightly reduce fiscal space available under the
‘expenditure benchmark’.
• Removing MNC profits from National Income in
fiscal arithmetic is only the first step.
• Should also exclude part of the revenues from MNC
and aim for a balanced budget excluding that.
• Could set aside 5% of the gap between GDP and GNP
• This is approximately half of the effective tax rate of
corporate profits.

27. Consequences
• This would mean budgeting for an overall surplus
in times of growth.
• The associated surplus should be saved in a
“Stability Fund”
• Which then allows for fiscal space in a downturn.
• Rules based on employment projections:
• Make contribution when growth > 1.5%
• Freeze contributions if growth < 1.5%
• Allow withdrawals for capital projects if growth < 0.5%

28. Conclusion
Two Obvious Constraints:
1 The Deficit: Should be eliminated
2 The Debt: Diminishing significance
Two Points to Note:
1 Expenditure: How we spend matters
2 Revenue: Prepare for the next “Rainy Day”