Budget 2012: Presentation to IPA Seminar Derek Moran, Tax Policy Unit, Department of Finance 9th December, 2011 www.taxpolicy.gov.ie
Overview • Fiscal Adjustment - a multi-annual perspective • Cumulative impact of policy adjustments • Future tax policy orientation? • Some Observations
Economic downturn… 47.5 12.6% decline in real GDP 45.0 peak to trough 42.5 40.0 s) (billion R U E 37.5 35.0 32.5 30.0 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 00 01 02 03 04 05 06 07 08 09 10 11 Real GDP Source: Reuters EcoWin with correction in domestic construction sector; GDP declines - contracted by 3% in 2008, 7% in 2009 and 0.4% in 2010; cline of 12.6%.
Fiscal Consequences…… 48 36 Underlying GG Expenditure GG Revenue 24 12 3.0 1 .6 0.1 0 -2.9 -5.0 Underlying GG Balance -7.3 -7.5 -8.6 -1 1 .2 -10.3 -1 1 .7 -12 2005 2006 2007 2008 2009 2010 2011 201 2 2013 2014 2015 Year
Budgetary Consolidation Adjustment package Main consolidation form Estimated Estimated Saving €bn Saving % GDP 1. July 2008 expenditure 1.0 0.6 2. October 2008 (2009 Budget) revenue 2.0 1.2 3. February 2009 expenditure 2.1 1.3 4. April (supplementary Budget) revenue 3.6 2.2 expenditure 1.8 1.1 5. December 2009 (2010 Budget) expenditure 4.3 2.7 6. December 2010 (2011 Budget) revenue & other 2.1 1.3 expenditure 3.9 2.5 1 billion over six policy announcements between July 2008 and end-2010; epresents approximately 13% of GDP;
Budgetary Consolidation 2012-2015 Adjustment package Main consolidation form Estimated Saving Estimated Saving €bn % GDP 2012 expenditure 2.2 1.4 revenue 1.6 1.0 2013 expenditure 2.25 1.4 revenue 1.2 0.8 2014 expenditure 2.0 1.2 revenue 1.1 0.6 2015 expenditure 1.3 0.7 revenue 0.7 0.4
Impact on Incomes Source: ESRI
Impact on composition of Tax Receipts 100% 2 2 2 4 3 3 8 7 3 4 12 7 12 12 8 12 80% 14 15 14 15 15 14 13 13 60% 29 32 32 33 31 30 40% 40 20% 36 36 32 29 27 0% 2006 2007 2008 2009 2010 2011f Income Tax Value Added Tax Customs & Excise Corporation Tax Stamp Duties Capital Taxes
Impact on Exchequer Tax Receipts from Peak 15000 12500 10000 Peak years for various € million Department of tax Finance 2011 revenues forecast 7500 5000 2500 0 2005 2006 2007 2008 2009 2010 2011f Income Tax VAT Corporation Tax Customs & Excises Capital Taxes Stamps
Tax Wedge 10 20 30 40 50 60 0 Belgium Hungary Tax Wedge OECD Members 2008 Single Individual on AIW Germany Impact on OECD Tax Wedge 2008 France Austria Italy Sweden Finland Czech Republic Greece Denmark Turkey Netherlands Slovak Republic Spain Norway Portugal Luxembourg Poland United Kingdom Canada Japan Switzerland United States Iceland Ireland Australia New Zealand Korea Mexico
Tax Wedge 10 20 30 40 50 60 0 Belgium France Germany Austria Italy Hungary Impact on OECD Tax Wedge 2011 Sweden Slovenia Tax Wedge OECD Members 2011 Single Individual on AIW Czech Republic Finland Estonia Spain Netherlands Denmark Slovak Republic Portugal Turkey Norway Greece Poland Luxembourg United Kingdom Iceland Ireland Japan Canada United States Australia Switerzland Israel Korea New Zealand Mexico Chile
Impact on markets (response to improving conditions) Ireland 10 Year Bond Yield 15 14 13 12 11 10 Percent 9 8 7 6 5 4 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov 10 11 Source: Reuters EcoWin et, reduction of EFSF/EFSM/IMF interest rates, progress on fiscal deficit, yields have fallen by more than 6 per cent from July peak.
Revenue Adjustments 2009 – 2011 • Adjustment led by income tax • MTR increase from c. 43% to 52% • OECD – Ireland the most progressive income tax system among EU members 2012 • Shift in emphasis to indirect tax • VAT, Carbon, Household Charge etc.
…………..and pre-Budget Submissions Pre Budget Submissions Budget 2008 289 Budget 2009 313 Supplementary Budget 2009 327 Budget 2010 809 Budget 2011 1064 Budget 2012 700
Future tax changes - Guiding Principle (?) OECD “Hierarchy” of Taxes Most Harmful Corporate Taxes Personal Income Taxes Consumption Taxes Least Harmful Property Taxes
2010: Source: Table II-4.3 Effective Average Corporate Tax Rates, non financial sector Effective Taxation Trends in the EU, 2011, Eurostat CIT Rates 23.2% 20-25% 23.8% >25% <20% 22.5% 16.5% 12.6% 23.6% 12.7% 14.4% 28.4% 17.5% 24.6% 28% 16.7% 16.8% 31% 22.7% 19.1% 14.8% 27.4% 18.2% 8.8% 32.8% 41.5% 23.9% 25% 10.6% 32.2%
2009: Change in VAT rate since 2008 25% No change 22% Increase 25% Decrease 20% 21% 19% 19% 21.5% 15% 22% - 21% 19% 2 19% . 19% 8 % 19.6% 20% 25% 19% 20% 20% 20% 16% 19% 20% 15% 15% 18%
2010: Change in VAT rate since 2008 25% No change 23% Increase 25% Decrease 20% 21% 19% 21% 21% 17.5% 22% - 21% 19% 2 20% . 19% 8 % 19.6% 20% 25% 24% 20% 20% 20% 18% 23% 21% 15% 15% 18%
2011: Change in VAT rate since 2008 25% No change 23% Increase 25% Decrease 20% 22% 19% 21% 21% 20% 23% - 21% 19% 2 20% . 20% 8 % 19.6% 20% 25% 24% 20% 20% 20% 18% 23% 23% 15% 15% 18%
Some Observations Some Observations • Ireland is recovering from a very deep downturn: – Growth is returning, albeit export led at this stage. – Relatively strong growth is expected over the medium-term. – The economy’s underlying strengths remain in tact. • There has been a significant policy response: – On track to correct the excessive deficit by 2015. – Large improvement in competitiveness. – Jobs initiative will assist in employment creation. • EU/IMF Programme is on track: – First four quarterly reviews completed. – Policy implementation strong. • No complacency over challenges ahead .
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