“Don’t say you weren’t warned” table of the Week
There is really no excuse for anyone in this country being surprised in December 2012 or December 2013 or December 2014 when the Government announces severe budget measures to close the gap between what we spend as a country and what we generate in taxes. The numbers are all set out in the Memorandum of Understanding with the IMF and EU, and they are shocking. Last week the Department of Finance produced a report on the Irish economy which included the above table which summarises the adjustments. And remember these annual adjustments will accumulate, so that by 2015 compared with 2012, there will be an adjustment in that one year alone of €8.6bn, equal to an average of €5,000 per Irish household. This is NOT an adjustment over three years, or €1700 per year – it is the adjustment in ONE YEAR ALONE.
Banker Maths of the Week
2.35%>4.56%
Richie Boucher, the CEO of Bank of Ireland is seemingly recommending acceptance of a “deal” done between BofI and the government whereby BofI will loan IBRC €2.8bn for one year, so that IBRC can repay the temporary digout received from NAMA in March as part of the jig to repay the promissory note tranche which fell due then. The BofI “deal” will see the bank lend €2.8bn to IBRC at 2.35% per annum, and the lending will be secured on the Irish government bond that was created in March. BofI will exchange the government bond at the ECB for a cash loan on which it must pay 1%, which means that BofI should make a profit of nearly €40m on its 1.35% margin. Make sense?
Except right now, BofI could go out and buy Irish government bonds which mature in April 2013 and January 2014. The interest rate or yield payable on the former is 4.56% and on the Jan 14s is 6.07%. These bonds are also eligible to be used as collateral for 1% lending from the ECB.
So why would BofI recommend a “deal” to its shareholders which might generate €40m in profit and ignore another “deal” which might generate €140m? Banker Maths.
7.4%<7.63%
At least president of the European Central Bank, Mario Draghi got his comparison (just about) correct during the week when he said “One would not be excessively optimistic if one says that if Ireland continues with these efforts, the return to market access is not a distant perspective. It could actually be closer than we all expected until, I would say months ago.” Those of us listening to the ECB press conference, including Irish journalists, actually thought he said “nine months ago” rather than just “months ago”. Problem is the yield on our 9-year bond today is 7.4% and in September 2011 – nine months ago – was at 7.6%. The difference is minuscule and presumably that’s why the ECB transcript omits the “nine months”. Neither 7.4% nor 7.6% is sustainable for large volume lending and we need get down below 5% which seems a distant and perhaps forlorn hope. Our benchmark yield was less than 7% on the eve of the first bailout in November 2010 and indeed was less than 5% in August 2010. Unfortunately next year,Ireland will have a debt:GDP of 120% and will still have a deficit of 7.5%, high unemployment and anaemic growth. And with ESM funding available at 3-4%, you would be doubtful of any prospect of returning to the market at this stage.
Quote of the Week
“Euro rises on speculation euro zone will remain intact” Reuters report, Monday 4th June 2012 – you KNOW you’re in trouble when the “speculation” is the euro zone will remain intact, though there are still serious doubts that Greece will survive as a member after its 17th June 2012 re-run of its general election which is likely to return another stalemate government or one which is keen to tear up the bailout arrangements.
“The debt position is sustainable, however, provided the correct economic and fiscal policies continue to be pursued. Fiscal consolidation measures (those already implemented as well as future adjustments) together with the implementation of growth-friendly economic policies will help reduce the build-up of public debt. The General Government debt-to-GDP ratio is expected to peak at around 120% of GDP next year before declining to approximately 117% by 2015.” Department of Finance in its May 2012 “Economics Perspectives” publication which provides the novel definition of sustainable debt, which is debt which shows signs of decline in future years!
Table of the Week
Minister for Public Expenditure Reform Brendan Howlin, responded to a question this week in which he referred to the above table which is a sobering look at public sector numbers and salaries. Not every public sector employee is on €100,000-plus, as is the tone of a general perception, though there are large numbers on salaries above what is considered the average wage of €32-35,000.
Yesterday the NTMA produced its error-ridden “investor road-show” presentation – it says private rents in Ireland are rising when they have in fact fallen in the last two months, it says there is a Troika agreement for NAMA to pay down €7.5bn by the end of 2013 when in fact any commitment is for asset disposals, not debt repayment and there are lots of other little simulations and dissimulations, the usual. But for the NAMA audience, the presentation shows the indebtedness of the biggest exposure NAMA debtors. NAMA has about 850 debtors in total, apparently, so this will be most of them.
Glasshouse Stone-Thrower of the Week
Wexford independent TD Mick Wallace has had a bad week. It was revealed – by Mick himself apparently in advance of an official publication – that Mick had under-declared his company’s Value Added Tax due in 2009 and that, in a subsequent settlement with Ireland’s tax authorities, the Revenue Commissioners, his company had agreed to pay €2m in unpaid VAT, penalties and interest. His company, M&J Wallace has gone subsequently into receivership and the bill has not been paid. Mick became a TD in February 2011. Mick says he knowingly under-declared the VAT in 2009 but claims he did it to protect his company and its 60 employees. There are some questions outstanding in this case, principally around the behaviour of the Revenue Commissioners who agreed to a settlement in a case where someone knowingly under-declared VAT, and where this settlement has not in fact been paid and is seemingly unlikely to be paid. Also the timing of the settlement is unclear and the implication is that it was recent as Mick says he revealed the settlement now, to preempt the news that would emerge in the quarterly list of tax defaulters. To many people in this State, Mick Wallace is walking away scot-free from something that others think should involve severe penalties, up to and including imprisonment. So Mick did bad and is facing the consequent music. Fair enough, but take a look at his self-righteousness of his critics and you might begin to wonder if any glasshouse might withstand this degree of stone-throwing.
The Irish Independent wrote on Thursday about how Mick and his son had doubled their salaries even as their company was facing financial difficulty in 2008. Hmmm. What about the company which is balance-sheet insolvent, which owes its banks €427m, has declining sales, haemorrhaged shareholder value in the past year, which has a nasty pension deficit and which made a loss of €41m in 2011? That company paid its departing CEO a golden handshake of €1.8m. And the name of that company? Why it’s Independent News and Media, the company which publishes the Independent. There is no suggestion whatsoever of wrong-doing on departed CEO Gavin O’Reilly’s – pictured above – part, but there are suggestions, notably set out in an ongoing court case in Dublin’s High Court, that the payment was “excessive and totally without justification” To shareholders who have seen their shares decline by 66% in the past year, the €1.8m settlement will probably be more galling than two people in Mick Wallace’s company getting a pay-rise which gave them annual salaries of €145,000.
Expect lots more stone-throwing in glasshouses in the days ahead.
Images of the Week
There is something disarmingly inspiring about the tiny community of Ballyhea making their way to Frankfurt in Germany this week, to “nail” a proclamation – available here with the story of their trip to Frankfurt – to the doors of the ECB. The fifteen protestors who included representatives from Charleville and elsewhere, door-stepped governor of the Central Bank of Ireland, Professor Patrick Honohan on his way into the monthly ECB meeting and he agreed to hand their letter to the ECB. Upon their return to Ireland, one of the protest leaders, Diarmuid O’Flynn from Ballyhea appeared on the Vincent Browne show. And these are the images of the week, the protest in Frankfurt, the proclamation “nailed” to the ECB door and one of the dynamos behind the protest, Diarmuid O’Flynn – all screengrabs from TV3. Tomorrow, they’ll be holding their 67th weekly protest march – details and photographs here – this week in Charleville, starting at 11.30am from the library, it’s 10 minutes, peaceful and dignified, but screams out the message of what bank debt is doing to this country. All are welcome.
Chutzpah of the Week
Or maybe it should be “schadenfreude of the week” as residents of the Priory Hall apartment complex in north Dublin pondered the seven week’s grace being given to NAMA developer Tom McFeely to vacate his €10m home on Dublin’s up-market Ailesbury Road, and they compared this notice period with the 48 hours they were given to get out of their homes last October 2011, following the discovery of building faults which had the potential to make their apartment complex a fire trap. Since then, the residents have been living in hotels and temporary accommodation as the Department of the Environment, Dublin City Council and others have argued about the cost of the debacle and the repairs needed to make the apartments safely habitable again. The developer who built the complex, Tom McFeely has meantime arranged to have himself declared bankrupt in the UK. During the week, NAMA was in action in Dublin’s High Court to take possession of the valuable property on Ailesbury Road – pictured here with Priory Hall protestors on New Years Eve 2011 – on foot of loans the Agency has now acquired. The McFeelys sought a stay on the order for another year, apparently on the basis of not disturbing the studies of their teenaged son who will be taking his Leaving Certificate in June 2013. The judge wasn’t having any of it, and granted a stay on the repossession for seven weeks. The 200-plus residents of Priory Hall are still living in limbo with mortgages outstanding on worthless apartments, with an uncertain future and repair work which has not yet been completed.
Ah sure Mick is a gas character,hauling out the Robin Hood defense.This was for laughs and giggles too,he’s an absolute disgrace and if has any moral compass or sense of dignity will resign immediately.
“So I knew of a guy made a living out of a gun,” he says. “I made contact with him and said ‘listen, there’s a guy owes me £20,000 – will you get it for me?’ He said he would give me £16,000 and keep £4,000.”
http://www.businessandfinance.ie/index.jsp?p=413&n=427&a=2095
Those public service numbers are somewhat nuanced. Remember that huge numbers are on part time and job share type employments, esp’ in health. So those numbers below €20k and more probably below that €30k are meaningless.
Further, when they say ‘Public’ are they including councils also. You can never take anything they say for plain, ever.
Story of the weekend.
Spain just accepted the bailout “unconditionally” and, most interesting, it will be considered Sovereign Debt. Sound familiar? This is from a live broadcast from the finance minister. IMF will “supervise” the banks.
Now watch Belgium
This was done today to drive a stake into the heart of SYRIZA.
The European Council statement on the Spanish bailout is now available
http://t.co/TP00lFPX
“To shareholders who have seen their shares decline by 66% in the past year, the €1.8m settlement will probably be more galling than two people in Mick Wallace’s company getting a pay-rise which gave them annual salaries of €145,000.”
Well the largest ones are Dennis O’Brien,O’Reilly family,Dermot Desmond,who cares about a few millionaires/billionaires,the vast majority of the shareholders are all OFF SHORE residents,arguing about severance packages it’s Theatre of the Absurd,Irish Taxpayer has no skin in this game.
Attacking,critics of Mick the P***k,is attempting to defend the indefinesaible,reflects poorly on Vincent Brown and NWL.Yeah,he’s a colorful character,a bit of light comic relief,his whole “sctick” is nauseating and distasteful.He’s a UCD graduate playing to the cheap seats,with his vineyard,transferred into the brothers name,and hard man one of the people nonsense.
He knowingly,perhaps even criminally falsified tax returns,he was a “custodian” of monies received that belong to the Irish Taxpayer,nothing whatsoever or remotely correlated to severance packages approved by Board of Directors.
He recently expressed grave concerns regarding the VAT increase,the ultimate two fingers to all decent hard working complaint Irish Taxpayers.
“To ask the Minister for Finance if he conducted cost benefit analysis on the VAT rate change from 21% to 23% for the first quarter of 2012 and the way it compares with the first quarter of 2011; and if he will make a statement on the matter.
– Mick Wallace.
For ORAL answer on Wednesday, 18th April, 2012”
http://mickwallace.net/index.php/parliamentary-questions-2/
Well put it another way, I was on a start your own business course a few months ago and I can safely say I was probably the only person there who had any interest in paying taxes, the rest of the course attendees were constantly and shamelessly asking over and over again of the instructors how they could avoid paying tax. It’s fine to criticise “Mick the P****k” but there is a culture of it in Ireland (we’re not too far from the Greeks in our loose attitude to paying tax) which should rightly be attacked also (methinks we are more interested in poking holes in hypocrites rather than looking at what the existence (and success) of those hypocrits tell us about ourselves), as NWL points out there is hypocrisy within it.
@SK
For further confirmation, look at the prevalent attitude to the repayment of debt. Why shouldn’t I follow the example of the so called ‘good and great’ and avoid paying my debts (and taxes) by hiding my wealth, falsifying documentation or emigrating to a tax or bankruptcy haven?
Surely this is “Joke of the Week”!
Structural Reforms
The Government has been very active in implementing a series of
structural reforms, both from a domestic policy agenda and under
the EU/IMF Memorandum of Understanding
In this regard, the Government has announced the following major
initiatives in labour market reform in the last year:
Pathways to work
Jobs Initiative
Action Plan for Jobs
Mohamed el-Erian of PIMCO fame is always banging on about the need for “Structural Reforms’ if he say the above list I think he would have a heart attack!
” And remember these annual adjustments will accumulate, so that by 2015 compared with 2012, there will be an adjustment in that one year alone of €8.6bn, equal to an average of €5,000 per Irish household. This is NOT an adjustment over three years, or €1700 per year – it is the adjustment in ONE YEAR ALONE.”
I’m not sure I understand this. The total adjustment will be €8.6bn, equal to an average of €5,000 per Irish household, yes, but it will not be €8.6bn extra between 2014 and 2015 which is what many might think by “the adjustment in one year alone”. The 8.6b takes place over three years, so it really is €1700 per year, cumulating to 5k per household after three years. Or am I wrong?
@Otto, you’re wrong!:-) In 2013, the adjustment is €3.5bn or €2,000 per household on average. In 2014, the adjustment is €6.6bn or €4,000 per household and in 2015 it’s €8.6bn or €5,000 per household. Remember we have a deficit of €13bn today and that has to be closed.
Yes it is “In 2013, the adjustment is €3.5bn or €2,000 per household on average. In 2014, the adjustment is €6.6bn or €4,000 per household and in 2015 it’s €8.6bn or €5,000 per household.”, but I would not describe that as €5,000 per household “in ONE YEAR ALONE”. It’s not 8.6bn extra adjustment between 2014 and 2015.
Anyway, confusion cleared up!
@ John Gallaher
If only you were as passionate about all the rest of the third level boys and girls who play us for infinitely bigger fools than Wallace
Read the “Buckley Report” as Paul Hunt said, over at Irisheconomy blog it reads like and Orwellian script.
“He knowingly,perhaps even criminally falsified tax returns,he was a “custodian” of monies received that belong to the Irish Taxpayer”
Where did the rest of the projected 200bn state debt come from/ go to? This is amazing sum borrowed in our sons and daughters names? Money borrowed in our collective names which we put into their “custodial care”? To use a Morgan’s expression “it disappeared up there own fundament”.
@RB you lost me here,Wallace is a sitting TD drawing 100,000 plus expenses from the Irish Taxpayer.He just knowingly stiffed them,not sure about the inconsistency or lack of passion in my postings,that you are referring to.Regarding the irisheconomy blog it’s a big yawn,same people trotting out same arguments endlessly.
@RB, “Where did the rest of the projected 200bn state debt come from/ go to?”
It went to pay for bailing out the banks, paying Public Service salaries that are the highest in Europe, funding a bloated social welfare system that we cannot afford and generally living beyond our means and running up a bill for future generations.
That’s where it went.
And from taxing middle income Ireland so very little…
Good story. I was in Dublin today and rubbernecked to look in Lisney,s property window, the one down the way from the Shelbourne. Two English guys were having a look at the prices and one goes to his mate “1.1million euro for a semi-D (was in Donnybrook), he must be having a laugh mate”. just sums up Ireland for me, a giant ponzi scheme. By the way, his mate took out his mobile phone and took a picture of the semi-D. Lovely.
Regarding the reference to La Dolce Vita,here’s the link.
“Although the Independent TD indicated that his debt to his brother was related to construction materials supplied, it is not clear what accounting mechanism was used to write off this debt nor why the ownership of the property was transferred to Joseph Wallace personally rather than to the company that had provided the materials which the Wexford TD had been unable to pay for.
The 2009 accounts for Associated Hardware and its subsidiaries don’t mention the Italian villa, although the company did book bad debts of €1.2m in 2009.
It is also clear that the deal allows Mick Wallace to retain use of the villa and vineyard.”
http://www.newsscoops.org/?p=686
Having,Mick Wallace as a sitting TD further undermines international confidence in Ireland,it confirms the perception that it’s a dirty little corrup island,fond of electing gombeen politicians,who like to get one over on the “man”.
Vincent Brown and NWL making weird and nonsensical analogies to others behavior,as justification for obnoxious/possibly criminal action is also a sad reflection on the country and the level of immaturity,grow up,he should resign.
While that lovable rouge Mick is on the piss in Poland,”supporting” the Irish soccer team,he should reflect on his actions and so should Vincent Brown.If Mick wants to support “Ireland” how about garnishing some your 100,000 grand as as TD and pay off the VAT you clipped.
@John,
“There are some questions outstanding in this case, principally around the behaviour of the Revenue Commissioners who agreed to a settlement in a case where someone knowingly under-declared VAT, and where this settlement has not in fact been paid and is seemingly unlikely to be paid. Also the timing of the settlement is unclear and the implication is that it was recent as Mick says he revealed the settlement now, to preempt the news that would emerge in the quarterly list of tax defaulters. To many people in this State, Mick Wallace is walking away scot-free from something that others think should involve severe penalties, up to and including imprisonment. So Mick did bad and is facing the consequent music.”
I don’t think the above treats Mick Wallace with kid gloves, and I think it accurately describes how many people feel.
Having said that, when others seek to up the ante, for example by reporting a pay-rise to an average of €145,000 per director in 2008, they might want to examine their own history before becoming too self-righteous. Was Vincent Browne right to draw attention to Fine Gael’s tax dodging in the 1990s and compare that to Mick Wallace’s deeds when Paschal Donohoe was on the show this week? It doesn’t absolve Mick Wallace from what he did, it just reminds some of those who would throw stones that they (or their organisations) are not exactly without sin.
@ John G
The rogue Mick will survive the storm. Ireland is not capable of self government, a minor bleep with Mick,s finances is hardly going to rattle the conventional wisdom of “sure did,nt he come clean”
I think Mick needs a shrink.”It was not me my Lord. It was my company” If he gets away with it people will just give up and we will be back to the days when nobody will pay tax .I feel like I am living in a time warp-back in the 1980s. If the guy who got caught sustituting apples for garlic got 6years maybe Mick should too. But then what have Seanie and Fingers got as punishment .I thought a file was due on them to the DPP. Anyone know what is happening there? If he has to resign will the technical group have enough members to get all the extras?
@NWL
I think your presentation of the budget adjustment is confusing: “In 2013, the adjustment is €3.5bn or €2,000 per household on average. In 2014, the adjustment is €6.6bn or €4,000 per household and in 2015 it’s €8.6bn or €5,000 per household. Remember we have a deficit of €13bn today and that has to be closed.”
No matter how many times I read this it suggests that the total adjustment over the three years is €18.7bn (€3.5bn+€6.6bn+€8.6bn). Say it ain’t so!
What I think you mean is that the cumulative adjustment over the three years is €8.6bn and not €18.7bn. If it is the latter figure I’d better start looking up Rachel Allen recipes for imaginative uses of thin gruel.
@Bunbury, the gap between income and expenditure today is €14bn in “underlying terms” – roughly what we earn in taxes and what we spend on the public sector, welfare, capital PLUS interest payments on the national debt.
Guess what? We have to close that gap!
So we’ll adjust €3.5bn in 2013, €6.6bn in 2014 and €8.6bn in 2015. We’ll still have an “underlying deficit” of €5bn in 2015 (3% of GDP). So the total adjustment in 2013-2015 is indeed €3.5bn plus €6.6bn plus €8.6bn = €18.7bn. And we will have “austerity” budgets at least until 2015 and probably for a few years afterwards where the Government takes more out of the economy than it puts in.
There’s a great Seamus Coffey blogpost on our deficits here – well worth five minutes of your time.
http://economic-incentives.blogspot.co.uk/2012/03/changing-nature-of-our-budget-deficits.html
@NWL
Taking a break from the match! Thanks for clearing that up. I was wrong.
It’s far worse than I thought and – amazingly – these sort of adjustment figures are not part of public discourse. In my experience people have no idea of the extent of the fall in living standards that’s going to happen.
so we have 6791 people earning more than €100K or 261 per county (exec commercial state, whats in that list NTMA, NAMA, ESB, BnaMona, CIE, etc etc??).
This is a minimum total of €836Million.
what are nearly Eight thousand civil servants earning more than €100k doing in Ireland today?