The Future is Bleak

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The future of the Irish economy is bleak.

Firstly, there’s a looming mortgage crisis that hasn’t been dealt with yet. The Government has produced a set of guidelines for lenders to manage defaulters. They’re asking banks to micromanage borrower’s finances and at the same time manage the losses on the loans which nobody is can afford to take the hit on.

Scale of the Irish mortgage crisis (source: Deutsche Bank).

Scale of the Irish mortgage crisis (source: Deutsche Bank).


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Secondly, there’s the Government’s current spending deficit that has suddenly taken a turn for the worse. Tax receipts are behind expectations and spending is out of control. Ignoring all capital expenditure items (which includes all the bank bailout stuff), the Irish Government will accrue losses in 2013 of around €12.1bn. This is based on projections from Q1 2013 actual figures.

Irish Government current deficit 1998-2013 (source Dept of Finance).

Irish Government current deficit 1998-2013 (source Dept of Finance).


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When the bailout has to be rolled over later in 2013, and the losses on the mortgage crisis funded, and the ongoing Government deficit funded, you have to wonder about the outlook for the Irish economy. It’s bleak to say the least.

UPDATE: Price of Petrol and Diesel in Ireland – 1991 to 2013

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Here’s an updated chart from an earlier blog post showing the prices of a litre of petrol and diesel in Ireland since 1991.  The prices pre-2001 are converted to euro. I’ve also added a line showing general prices within the economy starting from the same base as petrol in 1991. I think fuel is either way over priced, or we could be in for a period of high inflation in the years ahead.

Chart of petrol and diesel prices in Ireland 1991-2013

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Irish Effective Tax Rates Table for 2013

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These Irish effective tax rate calculations are based on a single PAYE earner in full time employment with PRSI class A1. All amounts are in euro and are rounded to nearest whole number. Source: Revenue IT1 2013.

Table: Irish Effective Tax Rates 2013
Gross salary PAYE USC PRSI Total tax Net salary Effective tax rate
18000* 300 579 0 879 17121 5%
20000 700 719 800 2219 17781 11%
25000 1700 1069 1000 3769 21231 15%
30000 2700 1419 1200 5319 24681 18%
35000 4162 1769 1400 7331 27669 21%
40000 6212 2119 1600 9931 30069 25%
45000 8262 2469 1800 12531 32469 28%
50000 10312 2819 2000 15131 34869 30%
55000 12362 3169 2200 17731 37269 32%
60000 14412 3519 2400 20331 39669 34%
65000 16462 3868 2600 22931 42069 35%
70000 18512 4219 2800 25531 44469 36%
75000 20562 4569 3000 28131 46869 37%
80000 22612 4919 3200 30731 49269 38%
85000 24662 5269 3400 33331 51669 39%
90000 26712 5619 3600 35931 54069 40%
95000 28762 5969 3800 38531 56469 41%
100000 30812 6319 4000 41131 58869 42%

* This figure is selected as the starting salary in this example because it is approximately equal to the current statutory minimum wage. The minimum wage is €8.65 per hour which gives an annual salary of €17,992 for full time employment.

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Government Current Receipts & Expenditure in Ireland 1998-2012

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Here is a chart showing the Irish Government’s current receipts and expenditure from 1998 to 2012. This excludes all capital items and therefore will also exclude all bank bailout costs. The most striking thing about this chart is that the Government’s current expenditure has increased each and every year since the recession started in 2008. The argument against cutbacks and austerity unfortunately doesn’t hold much water.

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Dublin Transport Network Schema Map

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I found an excellent map for the Dublin transport network that includes all major bus routes and stops. The person who created this map is Colin Broderick - it’s something many of us for years have wanted for Dublin and I think Colin has hit the nail on the head here. There are a few other versions out there, one created by Dublin Bus themselves, however, I think this is the best I’ve seen yet. He is selling the maps for €5 each. Click on the image to visit Colin’s site.

Dublin Transport Network Schema Map
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Why I’m Voting No to Fiscal Treaty Referendum

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This is a very brief point I posted on Facebook earlier about why I am voting NO on 31st May to the Fiscal Treaty referendum. I have many reasons, but this is one that I haven’t heard at all during the debate (except from a few in some niche circles on social media) – the threat of fiscal socialism.

Tomorrow we get the opportunity of whether or not to ratify the implementation of fiscal transfers in the eurozone. What are fiscal transfers? It is the mechanism that means stronger economies will be required to bail out weaker economies. Economies that are prudential about their public finances will be required to transfer their surpluses to the economies that aren’t capable of balancing the books. This creates fiscal socialism – the downward spiral of general economic competence to the lowest denominator. If Ireland aspires to be a strong economy again some day, we’ll always be handicapped by other economies that are content living from the coat tails of others. If you wanted what’s best for your children, you would look to send them to the best school. If we want what’s best for Ireland, we’d steer clear of models that encourage incompetence and discriminate against thrift and prudence. Tomorrow, we should vote NO.

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Gross and Net Pay Chart in Ireland 2012

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For more up to date effective tax rate figures, refer to this post.

The chart below compares gross and net pay in Ireland across different levels earnings from €5,000 through to over €100,000. The blue columns are gross earnings and the red columns represent the corresponding 2012 take home pay. The calculations are based on a single earner with standard employee and PAYE tax credits. Some points to note – earners only begin paying tax around €11,000. The effective tax rate only reaches 20% at €35,000 gross earnings. The marginal tax rate is 52% for all earnings over €36,000. Someone working full time on the minimum wage pays about 4% tax.

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Defined Benefit Pensions Are Dynamite

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The idea of promising today to pay someone a percentage of their average lifetime earnings when they will be due to retire in 30 years from now is absurd. Firstly, we don’t know what their average lifetime earnings will be and secondly, we don’t know if the underwriter will be capable of paying out in 30 years time. These types of pensions can only end in disappointment. As it is usually the State that provides these types of pensions to State employees, the seriousness of this issue hasn’t become fully apparent yet – but it will. In years to come there will be a huge public sector pensions crisis when the huge numbers at work today will be retiring.

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Household Charge Should Subsidise Commercial Rates?

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With unemployment static at over 14% for nearly 2 years now and the business sector, particularly local retail, still very weak, the household charge offers a good opportunity for local councils to lay off on commercial rates. If the household charge is here to stay (for the record, I’m against it completely), then city and county council’s should take this opportunity to reduce their dependence on businesses and make a serious dent in cutting property rates. They should spread the burden of providing services across households and businesses. At the moment, the largest share of local authority budgets are shouldered by businesses through rates.

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