Ronan Lyons | Personal Website
Ronan Lyons | Personal Website

May 2009

Is it cheaper to buy or rent?

In this post, I take a look at the maths behind buying or renting. Amazingly, even in heady market of 2006, it was cheaper to buy than rent. With rates back down at very low rates, and generous mortgage interest relief, it is once again cheaper to buy than rent – and looks set to stay that way, unless there are significant changes to the tax system. Read more

Taxpayers in Baltics, UK and Ireland facing the toughest questions

Two weeks ago, I examined the IMF’s estimates for growth prospects in 2009 and came to the conclusion that in a year where countries such as Afghanistan, Ethiopia and Laos are among the world’s fastest growing economies, more open economies are being hit by a collapse in the globalized consumer’s demand.

The temptation may be to regard this as a somewhat academic question but a closer examination of eurostat figures and the latest European Commission estimates for 2009-2010 shows why this has practical fiscal implications. Eurostat figures show that the EU’s budget deficit between 2000 and 2007 averaged just over 2%. Faster-growing countries such as Bulgaria, Estonia, Ireland and Sweden ran surpluses (Finland ran quite large surpluses in fact), while most of the Old Europe stalwarts, such as Germany, Italy and the UK, ran what would until recently have been termed sizeable budget deficits (i.e. greater than 2% on average).

The EU’s budget deficit grew from 0.8% in 2007 to 2.3% in 2008 and, according to the Commission, is set to almost treble this year to 6%. Next year, that deficit could increase even further to about 7% of EU GDP. Four countries face the prospect of their government balance undergoing a double-digit swing from what they were used to up to 2007 and what they will have to face in 2010 – Spain, the UK, Latvia and Ireland.

Given that foursome, I thought it might be worthwhile to see what groups there are within the EU – when it’s clear that the global trough has been reached, unanimity of purpose may pass, so these groups could have a political as well as economic relevance. The graph below shows mean budget deficits across seven relatively self-explanatory regions in the EU (GAF = Germany, Austria, France; PIGS = Portugal, Italy, Greece, Spain; CEE = Central & Eastern Europe). The regions are ordered from left to right by how ‘in balance’ the economies were from 2001 to 2007. What’s worth noting is that the ordering of the regions will have changed by next year – the Baltics and the British Isles (if I may call them that!) face significant budgetary deficits.

Budget deficits, 2001-2010, by EU region
Budget deficits, 2001-2010, by EU region

With more open economies being harder hit, their governments are facing pressure from all fronts. Alarming statistics are still coming in from places like Latvia, where output is down 30%, and Ireland, where tax revenues are down 24%. If exporters are being hit, their workers are likely to be hit – and the longer the recession goes on, the more workers will hold their consumption in check (not to mention unemployment).

The problem is that government deficits are the last point in the cycle – increasing taxes may have to wait unless the government wants to be responsible for second-round effects. This leaves Ireland in quite a conundrum, as its 2001-2007 tax base will not be coming back any time soon.

Where in Ireland has seen the biggest increase in unemployment?

My recent post on negative equity led to some discussions, particularly on irisheconomy.ie, about the financial (i.e. NAMA) and labour market (i.e. dole) implications of negative equity. Here, I use Live Register figures to work out which counties have been affected most by unemployment since the start of the recession. A group of counties from Laois up to Cavan appear worst affected, although all counties have seen unemployment at least double. Read more

How many Irish homes are in negative equity?

Ireland’s property market is currently in rewind. Homes now are at March 2005 values – or July 2004, if asking prices are 10% above closing prices. Figures from daft.ie, the Census and the Dept of the Environment allow an estimate of both the number of homes now worth less than when they were bought – about 725,000, or 40% of homes – and how many of those are in negative equity -about 340,000, or 20% of homes. Read more