Excellent Article Ronan. It puts a bit more meat on the assertions made by Seamus Coffee on Irisheconomy.ie and An Saoi from the Tasc website. From An Saoi. “Budget papers expected the 2012 yield to increase by €1,202M (8.7%) over the 2011 outturn and looks well nigh impossible. This surely will be clear by the end of March or April, leaving a mini-Budget inevitable.”
I imagine you would agree and that the cuts (I prefer the word to reforms) will have to come from Social welfare, Health and Education (Croke park revisited). My guess is that even with a mini budget we are looking at 22 billion deficit for 2012. Its projected at 18 but I am adding 2 billion more for extra bank recaps and 2 for a mixture of further shrinkage and overestimation of effectiveness in this years measures. It gives me no pleasure but I think it is time for more economists to face up to the reality of the “D” word happening to Ireland.
Without the bank debt we had a small but real chance, with it, and its been firmly attached to the sovereign at this stage, we are sunk.
otto
,
I’ll say it again: a tax on capital gains on the sale of the main residence would bring in a lot of money, all drawn from purchasers pre Celtic Tiger, be easy to collect (the money is there when the transfer takes place), and would not damage work incentives. Finance ministry take note.
otto
,
BTW, have you asked the Finance Ministry to comment on the view that their projections imply that income tax take would rise by 10% in 2012? Do they agree and how do they justify it?
Diarmuid
,
Ronan
The last pie chart looks wrong. Or at least the figures in the legend don’t correspond to the chart itself
Unemployed Person
,
200,000 jobs in 2012 eh? It will be like all my birthdays have come at once 🙂
I strongly suspect that a 2,000 gain over the year would be a result the way things are panning out.
I see the girls in La Senza at Liffey Valley are occupying the shop tonight as they don’t believe they will be paid their wages. KPMG refused to comment as they were too busy typing up their invoice at the time.
The additional month of the USC and other tax changes are budgeted to bring in €500M. Again I think this is overestimated.
Income tax for December fell below the Government’s estimate made as part of the Budget process by €32M.
The emphasis in the Revenue document and this last figure seems to suggest that there is a lot of unpaid or late paid taxes out there. This is a direct effect of the inability of many employers to fund cashflow as access to credit is reduced.
Even a minor improvement in access to short-term funding could dramatically improve the tax position.
Looking at the January tax figures, the 2012 total would need to be over €3,700M up from Jan 2011 (€3,131M) and Jan 2010 (€3,074M)if the Government is to be anywhere close to target. They have the delayed CT payment of €261M received in the post Xmas electronic post with the USC and last year’s tax changes should add around €350M. My own guess is it will be less than €3,400M leaving the April mini budget “inevitable”.
Roger
,
Ronan wrote:
“This would only stack up in two scenarios. The first is that everyone’s income grows by 10% next year.”
We don’t have a flat tax in Ireland, so it’s not necessary for everyone’s income rises by 10% for income tax to rise by 10%. No tax is paid on the first part of a person’s income, the lower rate applies to the next part, and it is only the higher part that attracts tax at the higher rate. An increase of just a few percent in an “average” person’s income might easily result in paying 10% more tax.
Also, most income tax is paid by a relatively small group of people who pay a lot of tax at the higher rate. If these people’s income were to rise by 10% it might be enough to increase the overall tax take by 10%. In other words, increasing inequality might lead to a higher tax take, because the poor don’t pay much tax.
I’m not saying it’s going to happen. Just that you don’t need a 10% rise in general incomes to increase income tax take by 10%.
Niall
,
Roger, Your basic point is well made. Many of the recently announced jobs are in the higher paid ICT sectors, while this might not apply to the jobs lost. However the decline in Public Service numbers will have a particularly heavy loss as those leaving and not being replaced are mainly in senior positions and/or higher paid technical professional posts. Also many people who have an income below the tax threshold.
I would expect the Income Tax figures to come in far below the €15,000 target. Roll on mini-budget!
A €1,165 million increase in Income Tax receipts is large but is it not quite as heroic as it might appear.
A lot of the tax collected in 2011 was based on 2010 income and tax law (e.g. self-employed, director, rent and other incomes). This year’s budget has no Income Tax changes but the December 2010 budget did (cuts in credits, bands and the introduction of the USC). Those in the above categories will not pay at these higher rates until they declare their 2011 income sometime before the November tax deadline.
In December 2010 it was estimated that this “carryover” effect would yield about €600 million and this was included in the €3,800 million adjustment in this year’s budget. It is hard to tell what the actual outturn will be. Income Tax came in 2.3% behind target in 2011 but PRSI was 5.3% ahead of target so it’s hard to know what will happen to a carryover measure this year.
I looked at the table referred to by Niall above and it does list about €500 million of revenue raising opportunities, but apart from a minor change to the USC yielding €50 million it is not clear what taxes the measures would affect.
The pensions’ tax debacle this week looks like it could yield around €75 million of additional tax. It could be that the revenue raising opportunities by the Revenue could yield an additional €200 million of Income Tax.
Between these and the carryover measures around €800 million (and maybe more) of forecast increase in Income Tax can be explained.
Even with this I agree with the overall point that the budgetary targets are unlikely to be met and the lack of resolve to tackle the current deficit either through tax increases or expenditure cuts.
Brian Sammon
,
Hi Ronan,
Excellent post, agree that significant public sector reforms are vital. Perhaps the real trick might be to start looking at how the various activities of government are being performed (cost recovery and an emphasis on tech focussed processes and financial modelling) if efficiencies won’t be addressed with a Croke Park 2.0.
Also, how would you mark this Noonan Budget 2012 versus Lenihan Budget 2011 – http://www.ronanlyons.com/2010/12/08/dude-wheres-my-six-billion-perspective-on-budget-2011
Hope to read many more excellent posts in 2012.
B
Niall
,
Seamus, In relation to the “carry forward”, there is only one month’s PAYE returns (January 2012) which will be influenced i.e. taxes paid in January 2011 referred to December 2010 and thus January 2012 will be the “twelfth month of the USC. I would suggest that the real level of the carry forward is no more than €300M (€250M USC & €50M other changes).
The real reflection of the state of income tax yield was the December tax figure I mentioned above.
An examination of the income tax payments in Oct/Nov 2011 suggests that there is precious little extra in yield from the self employed. Indeed taking into account the USC, income levels must have fallen quite substantially. The position for 2012 will surely be equally dire.
On the Revenue pursuit of the our pensioner tax defrauders, Ms Feehily mentioned yesterday a figure of over €300M taxable but not included in the Revenue calculations. Assuming one third is liable at the higher rate and the balance at 20% would assume a liability in the region of €80M. She came up with a net figure of €55M ish after additional claims for credits and deductions.
My own feeling is that there is a lot more to follow about the pensioners. For example there were a large number of pensioners claiming the half carer payment. Has this been included in the figures given to the Revenue? It appears not from the discussions yesterday.
Also you have huge numbers of pensioners resident in Ireland receiving Social Security pensions from abroad, in particular from the US & UK. These pensions are taxable in Ireland and many are unlikely to be known to the Revenue.
The yield from a concerted examination of the affairs of pensioners could provide a substantial windfall to the Revenue.
The loss of a large number of well paid jobs in the Public Sector and in financial services industry will hit the PAYE yield
An examination into the Oct/Nov 2011 tax receipts can only give a partial insight into what the self-employed earned in 2010. It is only this Oct/Nov that their 2011 earnings will be taken into taxed (and at higher rates).
It is impossible to say what will happen but a large aggregate earnings drop from 2010 to 2011 is unlikely. With higher tax rates to be applied to 2011 income I think it is clear that more revenue will be collected from the 2011 income. This will be collected this year.
Niall
,
@ Seamus The payment of tax made in October/November was the preliminary tax for 2011, which must be at least 90% of the year’s liability. If anything many self employed may have overpaid the tax, USC & PRSI due because their income will not reach the expected levels. People are likely to overpay slightly to avoid getting caught for interest. http://www.revenue.ie/en/tax/it/leaflets/it10.html#section4
There is also an issue in relation to the self employed that most of the high earners of course are in fact no more than agents for the State. Rates paid to doctors and barristers for example have been cut substantially. The need for a top up over PSWT is consequently a lot less.
I would not be expecting any additional tax due for 2011 from the self employed as I imagine overpayments will considerably exceed those who need to make a further remitance to balance their liabilities.
Martin Neary
,
An excellent analysis. But the books will not be balanced until we cut Public Pay, Pensions and Welfare by at least 30% and Ministerial and TD salaries by at least 50%. And eliminate the obscene contracts being awarded to RTE commentators and entertainers. The Croke Park agreement is not the problem; the inane politicians who have lacked the political courage to scrap it are the problem.
tadghoneill119
,
The stupid politicians are unwittingly leaving a new generation with a dire choice. Leave the country OR Rebel. This is going bad fast.
Eamonn Moran ,
Excellent Article Ronan. It puts a bit more meat on the assertions made by Seamus Coffee on Irisheconomy.ie and An Saoi from the Tasc website. From An Saoi. “Budget papers expected the 2012 yield to increase by €1,202M (8.7%) over the 2011 outturn and looks well nigh impossible. This surely will be clear by the end of March or April, leaving a mini-Budget inevitable.”
I imagine you would agree and that the cuts (I prefer the word to reforms) will have to come from Social welfare, Health and Education (Croke park revisited). My guess is that even with a mini budget we are looking at 22 billion deficit for 2012. Its projected at 18 but I am adding 2 billion more for extra bank recaps and 2 for a mixture of further shrinkage and overestimation of effectiveness in this years measures. It gives me no pleasure but I think it is time for more economists to face up to the reality of the “D” word happening to Ireland.
Without the bank debt we had a small but real chance, with it, and its been firmly attached to the sovereign at this stage, we are sunk.
otto ,
I’ll say it again: a tax on capital gains on the sale of the main residence would bring in a lot of money, all drawn from purchasers pre Celtic Tiger, be easy to collect (the money is there when the transfer takes place), and would not damage work incentives. Finance ministry take note.
otto ,
BTW, have you asked the Finance Ministry to comment on the view that their projections imply that income tax take would rise by 10% in 2012? Do they agree and how do they justify it?
Diarmuid ,
Ronan
The last pie chart looks wrong. Or at least the figures in the legend don’t correspond to the chart itself
Unemployed Person ,
200,000 jobs in 2012 eh? It will be like all my birthdays have come at once 🙂
I strongly suspect that a 2,000 gain over the year would be a result the way things are panning out.
I see the girls in La Senza at Liffey Valley are occupying the shop tonight as they don’t believe they will be paid their wages. KPMG refused to comment as they were too busy typing up their invoice at the time.
Niall ,
Ronan, Table 1.4 of the Revenue’s Comprehensive Expenditure Review provides some of the answers. http://www.revenue.ie/en/about/publications/comprehensive-expenditure-review.pdf/. However I personally think the targets are impossible.
The additional month of the USC and other tax changes are budgeted to bring in €500M. Again I think this is overestimated.
Income tax for December fell below the Government’s estimate made as part of the Budget process by €32M.
The emphasis in the Revenue document and this last figure seems to suggest that there is a lot of unpaid or late paid taxes out there. This is a direct effect of the inability of many employers to fund cashflow as access to credit is reduced.
Even a minor improvement in access to short-term funding could dramatically improve the tax position.
Looking at the January tax figures, the 2012 total would need to be over €3,700M up from Jan 2011 (€3,131M) and Jan 2010 (€3,074M)if the Government is to be anywhere close to target. They have the delayed CT payment of €261M received in the post Xmas electronic post with the USC and last year’s tax changes should add around €350M. My own guess is it will be less than €3,400M leaving the April mini budget “inevitable”.
Roger ,
Ronan wrote:
“This would only stack up in two scenarios. The first is that everyone’s income grows by 10% next year.”
We don’t have a flat tax in Ireland, so it’s not necessary for everyone’s income rises by 10% for income tax to rise by 10%. No tax is paid on the first part of a person’s income, the lower rate applies to the next part, and it is only the higher part that attracts tax at the higher rate. An increase of just a few percent in an “average” person’s income might easily result in paying 10% more tax.
Also, most income tax is paid by a relatively small group of people who pay a lot of tax at the higher rate. If these people’s income were to rise by 10% it might be enough to increase the overall tax take by 10%. In other words, increasing inequality might lead to a higher tax take, because the poor don’t pay much tax.
I’m not saying it’s going to happen. Just that you don’t need a 10% rise in general incomes to increase income tax take by 10%.
Niall ,
Roger, Your basic point is well made. Many of the recently announced jobs are in the higher paid ICT sectors, while this might not apply to the jobs lost. However the decline in Public Service numbers will have a particularly heavy loss as those leaving and not being replaced are mainly in senior positions and/or higher paid technical professional posts. Also many people who have an income below the tax threshold.
I would expect the Income Tax figures to come in far below the €15,000 target. Roll on mini-budget!
Seamus Coffey ,
Hi Ronan,
A €1,165 million increase in Income Tax receipts is large but is it not quite as heroic as it might appear.
A lot of the tax collected in 2011 was based on 2010 income and tax law (e.g. self-employed, director, rent and other incomes). This year’s budget has no Income Tax changes but the December 2010 budget did (cuts in credits, bands and the introduction of the USC). Those in the above categories will not pay at these higher rates until they declare their 2011 income sometime before the November tax deadline.
In December 2010 it was estimated that this “carryover” effect would yield about €600 million and this was included in the €3,800 million adjustment in this year’s budget. It is hard to tell what the actual outturn will be. Income Tax came in 2.3% behind target in 2011 but PRSI was 5.3% ahead of target so it’s hard to know what will happen to a carryover measure this year.
I looked at the table referred to by Niall above and it does list about €500 million of revenue raising opportunities, but apart from a minor change to the USC yielding €50 million it is not clear what taxes the measures would affect.
The pensions’ tax debacle this week looks like it could yield around €75 million of additional tax. It could be that the revenue raising opportunities by the Revenue could yield an additional €200 million of Income Tax.
Between these and the carryover measures around €800 million (and maybe more) of forecast increase in Income Tax can be explained.
Even with this I agree with the overall point that the budgetary targets are unlikely to be met and the lack of resolve to tackle the current deficit either through tax increases or expenditure cuts.
Brian Sammon ,
Hi Ronan,
Excellent post, agree that significant public sector reforms are vital. Perhaps the real trick might be to start looking at how the various activities of government are being performed (cost recovery and an emphasis on tech focussed processes and financial modelling) if efficiencies won’t be addressed with a Croke Park 2.0.
Also, how would you mark this Noonan Budget 2012 versus Lenihan Budget 2011 – http://www.ronanlyons.com/2010/12/08/dude-wheres-my-six-billion-perspective-on-budget-2011
Hope to read many more excellent posts in 2012.
B
Niall ,
Seamus, In relation to the “carry forward”, there is only one month’s PAYE returns (January 2012) which will be influenced i.e. taxes paid in January 2011 referred to December 2010 and thus January 2012 will be the “twelfth month of the USC. I would suggest that the real level of the carry forward is no more than €300M (€250M USC & €50M other changes).
The real reflection of the state of income tax yield was the December tax figure I mentioned above.
An examination of the income tax payments in Oct/Nov 2011 suggests that there is precious little extra in yield from the self employed. Indeed taking into account the USC, income levels must have fallen quite substantially. The position for 2012 will surely be equally dire.
On the Revenue pursuit of the our pensioner tax defrauders, Ms Feehily mentioned yesterday a figure of over €300M taxable but not included in the Revenue calculations. Assuming one third is liable at the higher rate and the balance at 20% would assume a liability in the region of €80M. She came up with a net figure of €55M ish after additional claims for credits and deductions.
My own feeling is that there is a lot more to follow about the pensioners. For example there were a large number of pensioners claiming the half carer payment. Has this been included in the figures given to the Revenue? It appears not from the discussions yesterday.
Also you have huge numbers of pensioners resident in Ireland receiving Social Security pensions from abroad, in particular from the US & UK. These pensions are taxable in Ireland and many are unlikely to be known to the Revenue.
The yield from a concerted examination of the affairs of pensioners could provide a substantial windfall to the Revenue.
The loss of a large number of well paid jobs in the Public Sector and in financial services industry will hit the PAYE yield
Seamus Coffey ,
@ Niall,
An examination into the Oct/Nov 2011 tax receipts can only give a partial insight into what the self-employed earned in 2010. It is only this Oct/Nov that their 2011 earnings will be taken into taxed (and at higher rates).
It is impossible to say what will happen but a large aggregate earnings drop from 2010 to 2011 is unlikely. With higher tax rates to be applied to 2011 income I think it is clear that more revenue will be collected from the 2011 income. This will be collected this year.
Niall ,
@ Seamus The payment of tax made in October/November was the preliminary tax for 2011, which must be at least 90% of the year’s liability. If anything many self employed may have overpaid the tax, USC & PRSI due because their income will not reach the expected levels. People are likely to overpay slightly to avoid getting caught for interest. http://www.revenue.ie/en/tax/it/leaflets/it10.html#section4
There is also an issue in relation to the self employed that most of the high earners of course are in fact no more than agents for the State. Rates paid to doctors and barristers for example have been cut substantially. The need for a top up over PSWT is consequently a lot less.
I would not be expecting any additional tax due for 2011 from the self employed as I imagine overpayments will considerably exceed those who need to make a further remitance to balance their liabilities.
Martin Neary ,
An excellent analysis. But the books will not be balanced until we cut Public Pay, Pensions and Welfare by at least 30% and Ministerial and TD salaries by at least 50%. And eliminate the obscene contracts being awarded to RTE commentators and entertainers. The Croke Park agreement is not the problem; the inane politicians who have lacked the political courage to scrap it are the problem.
tadghoneill119 ,
The stupid politicians are unwittingly leaving a new generation with a dire choice. Leave the country OR Rebel. This is going bad fast.