Friday, February 26, 2010

Trading partners

Following on from a look at export levels here, we can also use the latest CSO External Trade release to look at Ireland’s trading partners.
The following table gives the top 12 destinations of Irish exports in millions of euro, along with the remaining exports to other EU countries and other worldwide countries.  The table gives the percentage change from the same period in 2008 in exports to this country and the proportion of total exports that go to that country.
CountryJan-Nov 2008Jan-Nov 2009% Change% of Exports
Great Britain13,108.411,233.4-14.3%14.5%
Northern Ireland1,451.21,157.1-20.3%1.5%
Other EU4,596.03,912.3-14.9%5.0%
Other countries8,649.07,692.7-11.1%9.9%
After the US, the biggest destination of Irish exports is Belgium, taking nearly 18% of the total exports.  Belgium is the biggest destination of Irish exports in the EU, overtaking Great Britain and is more than three times greater than either France or Germany.  Exports to Belgium also show strong year-on-year performance with a 22.1% increase on the same period in 2008.
This is likely related to pharmaceutical exports, with manufactured products from Ireland exported to central distribution hubs in Belgium.  Again it is likely that the size and increase of this flow is due to transfer pricing behaviour rather than real changes in output and employment.

An Export-Led Recovery?

On Tuesday the CSO published the latest release of the monthly external trade statistics.  As with many recent patterns from the Irish economy, the data do not paint a positive picture.  At first glance it may seem that all is not too bad as our overall trade balance increased through 2008 and most of 2009.
The following graph gives our trade balance from the start of 2005 through to November 2009.
trade balance
The trend has turned slightly downward over the past few months, but our trade balance is still substantially higher than it was two years ago.  If we break down the balance into its constituent elements of imports and exports we see that the trade balance is improving because of the rapid fall in imports.  We are buying less stuff from abroad. This is shown in the following graph

Friday, February 19, 2010

Why isn't the corporate income tax progressive?

The equity principle that underlies most tax system suggests that those who have a higher income should pay a greater proportion of their income in tax.

This progressivity is clear if we consider income tax, but absent for corporation tax.  Using data from the Revenue Commissioners 2008 Statistical Report we can draw the following graph.

Tax Rates

This gives the effective tax rate on labour on wages up to €200,000 (lower axis) and the effective tax rate on corporations on profits up to €10,000,000 (upper axis).  We see that the tax rate on labour rises with income, from 0% up to about 28%, while the tax rate on corporations is around 11% for all profit levels.

Why should a company that earns a profit of ten thousand pay the same rate of tax as a company that earns a profit of ten million?  Why is the corporation tax not progressive?

Andrew Chamberlain provides the answer:

Confusing Income and Wealth

It is very common to see income (a flow measure) confused with wealth (a stock period).  Wealth is accumulated through a period of high income. High income alone does not indicate wealth.  Wealth is accumulated with persistent levels of high income.

This reached a peak when after 2006 among non-oil economies Ireland was declared “the richest country in the world”.  A piece in The Irish Independent declared that “Ireland is rated sixth richest country in global wealth league”.  The piece declared:
IRELAND is now the richest non-oil country in the world, apart from the small financial hubs. With the exception of world financial centres like Liechtenstein and Bermuda and the oil kingdoms of Norway and Qatar, Ireland is now the world's richest country with an average income of €44,000.
The Standard & Poor's agency ratings show Ireland lying in sixth position for the second year in a row, easily beating the likes of the US and the UK, who took 11th and 18th places respectively. Ireland's average income has risen from €39,335 last year to a new high of €44,000. The increase in wealth is reflected in spending both on property and on the high street.
There it is in black and white - “Ireland is now the world’s richest country”.  Everyone bought into it.  A couple of good years and we’re suddenly declared the richest country around.  We started in 1995.  Some countries have a head start on us at wealth accumulation of hundreds of years yet we’re supposed to have wiped that out, and more, in a decade.

This report from National Irish Bank provides an interesting analysis of wealth in Ireland.  Maybe we’re not as “rich” as we thought we were.

Today Davy Stockbrokers have released a report of their own which does not confuse income with wealth.  They analyse what we have done with the money we earned during the high income period from 2000-2008.  Their opening remark is stark.
Ireland ranks reasonably well in income tables, but it is not
a wealthy country; high income in 2000-2008 largely wasted.
The report makes for interesting reading and the conclusion is clear.  Here it is in black and white.
We blew the boom!

Saturday, February 13, 2010

Does Debt Matter?

On his ever interesting blog Steven Landsburg has posted a short piece on Debt and Taxes.  With attention around the world focusing on the debt and deficit problems of governments, Landsburg argues that it is not debt that is the problem but spending.  He concludes
This is why it’s so frustrating to hear talk of blue ribbon commissions assigned to the task of “debt reduction”. “Debt reduction” can mean less spending, or more taxes, or some combination thereof. But to raise taxes solely for the purpose of debt reduction is to mask the problem, not to solve it. Debt is not the problem; spending is. Hysteria about the debt is misdirection.
Read the whole thing.

Deflation Nation

On Thursday the CSO released the January update of the Consumer Price Index.  The figures reveal that the annual rate of inflation -3.9%, the highest (least negative) it has been since April 2009.  However, if we look at a measure of 'core inflation' we actually see that the inflation rate is still declining.

Here core inflation is the CPI excluding mortgage interest and energy.  The prices of these goods are largely external to the Irish economy.  Here is a graph of the overall CPI and core inflation annual rates.  Click to enlarge.

Tuesday, February 9, 2010

Car Sales Speeding Up?

We have been hearing positive vibes from the motor industry with sales figures for January released last week.  RTE tell us that there are more people buying new cars
The number of new cars registered last month is up 5% on January 2009, according to new figures from the Society of the Irish Motor Industry.  16,595 new cars were registered in January 2010, compared to 15,799 in January last year. This is the second consecutive month showing an increase.
See also reports in The Irish Times and The Irish Independent.  But as with so much economic commentary (spin?) things are not always as they appear to be.

Retail Sales Data not "Turning the Corner"

This morning the CSO published the Retail Sales Index for December.  The release gives the final retail sales figures for November and preliminary estimates for Decemeber.  As with many other indicators the data show the rate of decline in the economy accelerating.  Here is a graph of the annual change in the value index excluding motor sales for the past two years.

The annual decline accelerated in December to -11.6% after being -11.0% in November.  See the downward trend in the actual index in this graph. No sign of any corner being turned here.

By volume the rate of decline accelerated from -5.9% to -6.7%.  Graph here. Volume is falling at a slower rate than value as retailers are reducing prices to try and increase the quantity of sales.  They are failing.

The best example of this can be seen if we compare the value and volume sales indices for Department Stores.

Women and Men in Ireland 2009

The CSO have released theie latest version of the Women and Men in Ireland publication.  The release provides some interesting statistics across a range of areas: population, employment, lifestyles, education, health, crime and transport.

From a third level education perspective there are some interesting patterns.  Here is a graph of the percentage of the population aged between 25 to 34 who have a third level qualification. Click to enlarge.

The percentages were almost identical in 1999: men 26.7% and women 27.5%.  Although the percentage has been rising for both genders there has been a huge divergence in the series since 1999.  As of 2009, 51% of women in the 25-34 age category had a third level qualification as to only 38.7% of men.

Monday, February 8, 2010

Tax Revenue for 2010 will fall below €30 billion.

As of today (08/02) I predict that Exchequer tax revenues for 2010 will be less than €30 billion for the first time since 2002 (€29.3 billion).  This was fine to fund 2002 expenditure but not for the 2010 expenditure which is nearly twice as big.  The Department of Finance still believe the figure will be above €31 billion but are getting closer to the truth.

A week before December's Budget the Department released the Book of Estimates for 2010. In this short document the Department give their forecasts for the coming year under the prevailing policies.  On page 5 the prediction for tax revenue for 2010 is given as €31.9 billion - a drop of just 4.5% on the 2009 outturn.

At this point it may be worth noting the uselessness of Department of Finance predictions. 

Saturday, February 6, 2010

Good Copy, Bad Copy

Courtesy of Google Video here is a good documentary on the current state of copyrights in the world. I presume the creators have ceded the copyright on the documentary.

There is an interesting post from the blog Marginal Revolution on the issue of fixed costs and marginal cost pricing.  Some of the comments are particularly incisive. 

Friday, February 5, 2010

They Like Us. They Really Like Us. But why?

The Economist carries a piece that considers the fiscal crises facing many eurozone countries.  They put particular emphasis on Greece and in doing so provide a contrast to the Irish situation.
The planned cuts to the public-sector wage bill look small when set against such a large budget deficit. They also look timid when compared with the much bolder action taken in Ireland, another cash-strapped euro member. In December the Irish government announced big reductions in civil servants’ pay, only months after it had introduced a “pension levy” that cut public-sector wages by 7%. Its courage has been rewarded with lower borrowing costs.
There is also this.
Ireland is small, too, but its government has shown itself willing to take unpopular decisions to right its public finances. The Irish economy is more flexible so its medium-term prospects seem brighter. The economy grew slightly in the third quarter of last year. There are even signs that tax revenues are recovering.
So everything must be hunky dory so.  Not so I'm afraid. 

Comedy and Economics - Not the Best Bedfellows

Best viewed in full screen (button third from the left at the bottom).

The Irish Economy Going into 2010: Turning the Corner?

Back on the 11th of January I gave a one-hour seminar to the Faculty of Commerce in UCC called The Irish Economy Going into 2010: Turning the Corner?  The slides using in the seminar were posted here previously.

An draft of the paper presented was submitted to the Department of Economics Working Paper Series. A pdf of the paper is available here.