ANALYSISGiven the prior collapse in revenues and the imperative that they be stabilised, developments of the April-June quarter are very positive, writes DAN O'BRIEN
EXCHEQUER RETURNS released yesterday probably provide the best economic news of the week. In the second quarter of the year, a period when receipts have weakened particularly markedly in recent years, total tax revenues stood at €7.2 billion.
In year-on-year terms, this represents a decline of only 1.4 per cent on the same quarter of 2009, the best outcome by this measure in any quarter since 2007.
Even better was the quarter-on-quarter development. Revenues fell just half a percentage point, far less than the equivalent rates of change in the April-June period going back five years (for instance, a decline of 14.2 per cent was registered last year; 27.8 per cent in 2008; and 24.3 per cent in 2007).
Given the collapse in revenues that has been experienced in recent years and the imperative that they be stabilised to avoid national bankruptcy, the developments of the April-June quarter are very positive, suggesting that the inflection point heralded so frequently in the past by the Government has now actually been reached.
If there is a negative on the revenue side, it is in the income tax numbers. These fell in relation to the first three months of the year and compared to the same period in 2009. This suggests that the numbers in employment continued to fall up to June. Such a conclusion is reinforced (but not confirmed) by a rising welfare claimant count to mid-year.
Developments on the spending side were less clear in the April-June period. While current expenditure jumped by more than one tenth over the first quarter of 2010, it was stable year-on-year.
That said, there is little doubt that the clampdown on spending is taking effect across government departments. In the first six months of the year, 13 of the 15 departments cut combined current and capital spending compared to the same period a year earlier, with Social and Family Affairs the only one in which spending in absolute terms rose significantly.
Capital spending in the first half of the year was well below budget. Department of Finance officials were at pains to attribute this to the inherently “lumpy” nature of capital expenditure. Although you usually need to be cautious when officials start bandying about what passes for fashionable jargon in economics terms, they have a point, and capital spending is likely to jump over the next two quarters.
But the more important point is that a good chunk of this money has not been formally committed yet (much to the chagrin of builders, Ibec and the trade unions, which joined forces recently to demand that their respective members be given the benefit of more public spending). The non-binding nature of the commitment gives the Government leeway in the second half of the year if budgetary position deteriorates, for whatever reason. In that case, they retain the option to cut this spending line.
A final point. Transparency is an important aspect in the sound management of the public finances. The department’s lack of innovation over the years in its presentation of the data reflects the same disinterest in change that has long bedevilled it, and that contributed to the fiscal catastrophe of recent years.
Most absurdly, particularly for public understanding of developments, is the publication of cumulative figures over the course of the year. This means that as the year progresses, the latest monthly and quarterly developments become obscured. Among other things, it means inflection points in spending and taxation patterns are much more difficult to spot.
In fairness, however, the department does seem receptive to suggested changes in how it presents data. Perhaps in coming months a more user-friendly format will be devised.
