Category Archives: Austerity

17/10/17: Welcome to the Keynesian Monetarist Paradise


Via IMF, a chart plotting changes in sovereign debt holdings across Government, International & Central Bank agencies (so-called G-4 Official) and private debt holders:


Note:

  1. These are changes in the stock of debt, not the actual stock of debt;
  2. These are changes in the stock of debt of only four largest advanced economies;
  3. These are changes in the stock of only sovereign debt, excluding quasi-sovereign, private and household debts; and
  4. The years of forward forecast are, allegedly, the years of QE unwinding.
This debt bubble is a money-printing bubble which is a Keynesian Government 'stimulus' bubble. Look at the above. QED.

And, if you have not reaped its upside, you will pay its downside. Now, check your pockets.


28/7/17: Climbing the Deficit Mountains: Advanced Economies in the Age of Austerity


Just a stat: between 2001-2006 period, cumulative Government deficits across the Advanced Economies rose by SUD 5.135 trillion. Over the subsequent 6 years period (2007-2012) the same deficits clocked up USD 14.299 trillion and over the period 2013-2018 (using IMF forecasts for 2017 and 2018), the cumulated deficits will add up to USD 8.197 trillion. On an average annual basis, deficits across the Advanced Economies run at an annual rate of USD0.86 trillion over 2001-2006, USD 2.375 trillion over 2007-2012 and USD 1.385 trillion over 2013-2017 (excluding forecast year of 2018).

As a percentage of GDP, 2001-2006 saw Government deficits for the Advanced economies averaging 2.68% of GDP annually in pre-crisis era, rising to 5.42% of GDP in peak crisis years of 2007-2012, and running at 2.98% of GDP in 2013-2017 period. Looking at the post-crisis period, return to pre-crisis levels of Government spending would require

In simple terms, there is a mountain of deficits out there that has been sustained by cheap - Central Banks’ subsidised - funding, the cost of which is starting to go North. The cost of debt financing is a material risk consideration.



21/7/17: What Irish Civil Service is Good For?..


Recently released data on 2011-2016 Irish Government financial metrics shows that despite all the reports concerning the adverse impact of austerity on Irish Government employees, there is hardly any evidence of such an effect at the pay level data.

Specifically, in 2011, total compensation bill for the Irish Government employees stood at EUR 19.389 billion. This 5.39% between 2011 and the lowest point in the cycle (2014 at EUR18.344 billion), before rising once again by 2016 to EUR 19.354 billion. Total savings achieved during 2012-2016 period compared to 2011 levels of expenditure amounted to EUR2.759 billion on the aggregate, or 2.85% (annualized rate of savings averaged less than 0.57% per annum.


Statistically, there simply is no evidence of any material savings delivered by the 'austerity' measures relating to Government compensation bills.

But, statistically, there is a clear evidence of Irish public sector employment poor performance. Oxford University's 2017 International Civil Service Effectiveness Index, http://www.bsg.ox.ac.uk/international-civil-service-effectiveness-index, ranked Ireland's Civil Service effectiveness below average when compared across 31 countries covered in the report.

Spider chart below shows clearly two 'outlier' areas of competencies and KPIs in which Irish Civil Service excels: Tax Administration and Human Resource Management. Rest of the metrics: mediocre, to poor, to outright awful.

In fact, Ireland ranks 20th in terms of overall Civil Service Effectiveness assessment, just below Mexico and a notch above Poland. Within index components, Ireland ranked:

  • 16th out of 31 countries in terms of Civil Service Integrity and Policy Making
  • 26th in terms of Openness (bottom 10)
  • 20th in terms of Capabilities, and Fiscal and Financial Management
  • 13th in terms of Inclusiveness
  • 22nd in terms of Attributes (bottom 10)
  • 28th in terms of Regulation (bottom 5)
  • 8th in terms of Crisis Risk Management
  • 1st in terms of Human Resource Management (aka, working conditions and practices)
  • 4th in terms of Tax Administration
  • 31st in terms of Social Security Administration (dead last)
  • 21st in Digital Services and in terms of Functions (bottom 10)
So while managing to score at the top of the league of countries surveyed in terms of pay, perks, hiring and promotion, Irish Civil Service ranked within bottom 10 countries in terms of areas of key performance indicators, relevant to actual service delivery, with exception of one: Tax Collection. May be we shall call it Pay, perks & Tax Collection Service?

But, hey, know the meme: it's all because of severe austerity-driven underfunding... right?.. 



Update:

In response to my post, the Press Office at Dept. of Public Expenditure and Reform posted the following, quite insightful comments on the LinkedIn, that I am reproducing verbatim here:

Secretary General Robert Watt: I was interested in reading this comment – and in particular the data on civil service performance.  There are methodological issues with the Study quoted.  Nevertheless readers might be interested in other data about the effectiveness of the Irish civil and public service which might give a more balanced assessment of performance. Important to consider the evidence before we reach conclusions.  Also, important to note difference between Civil Service (36,000 staff) and wider public service (320,000 staff)

Public Service performance

Over a range of international rankings, the IPA’s annual public service trends publication shows the Irish public service performing above average on many indicators.

The IPA’s Public Sector Trends, 2016

  • Ireland is ranked 1st in the EU as the most professional and least politicised public administration in the Europe;
  • Ireland is ranked 5th for quality of public administration in the EU;
  • Ireland is ranked 6th in the EU for maintenance of traditional public service values (integrity); 
  • Ireland is ranked 4th in the EU for perception of the effectiveness of government decisions;
  • Ireland is ranked 2nd in the EU for encouraging competition and a supportive regulatory environment;
  • Ireland is ranked 4th in the EU for regulatory quality;
  • Ireland is ranked 3rd in the EU in comparison of how bureaucracy can hinder business;
  • Business update of eGovernment services is higher than most of Europe with Ireland ranked 1st for highest update of electronic procurement in Europe;
  • According to the World Bank, Ireland is ranked well above average for Government Effectiveness (although individual rankings are not available);
  • Ireland is ranked 5th in Europe in the competitive advantage provided by the education system; 
  • Ireland ranks 10th for life expectancy at birth and 8th for consumer health outcomes, but slightly below average for the cost-effectiveness of health spending;

The OECD’s Government at a Glance, published in July 2017 shows Ireland ranking strongly across a range of metrics although healthcare is a notable exception:

  • Ireland is ranked 2nd in terms of citizen satisfaction with the education system and schools;
  • Ireland is ranked 6th for citizen satisfaction with the judicial system and the courts and is also in the top 4 best improved countries in the last decade;
  • Ireland is ranked 26th for citizen satisfaction with the healthcare system (slightly below average).

Recent customer satisfaction surveys of the Irish civil service show it delivering its highest customer satisfaction ratings to date. Satisfaction with both the outcome and the service delivered was rated over 80% which is close to the credible maximum.
General Public Civil Service Satisfaction Survey, conducted Q1 2017:      

  • 83% are satisfied with the service they received (up from 77% in 2015);
  • 82% are satisfied with the outcome of their customer service experience (up from 76% in 2015);
  • 46% would speak highly of the civil service (up from 39% in 2015);
  • 87% of customers claim that service levels received either met or exceeded expectations (up from 83% in 2015).

Business Customers Civil Service Satisfaction Survey, conducted, Q4 2016:

  • 82% are satisfied with the service they received (up from 71% in 2009);
  • 82% are satisfied with the outcome of the service received (up from 70% in 2009);
  • 61% felt that the service provided has improved in the last 5 years.

Lots done but more to do!



My reply to the Department comment:

Thanks for the comments on this, Press Office at Dept. of Public Expenditure and Reform. I got similar methodological comments regarding the robustness of the Oxford study via Facebook as well and, as I noted, in the technical analysis part of the paper, Oxford centre does show improved metrics for Irish civil service performance in the later data, which is heartening. Also, noted the apparent dispersion of scores and ranks across countries, with what we might expect as potentially stronger performers being ranked extremely low. Also, noted the issue of data on Social Welfare for Ireland being skewed out of OECD range and impacted by 2011 legacy issues (although it is unclear to me how spending via health budget on social welfare is treated in the OECD and Oxford data). I will post your comments on the blog to make sure these are not lost to the readers.


I agree: lots done and certainly more to do, still. 

21/7/17: Professor Mario: Meet Irish Austerity Unsung Hero


In the previous post covering CSO's latest figures on Irish Fiscal metrics, I argued that the years of austerity amount to little more than a wholesale leveraging of the economy through higher taxes. Now, a quick note of thanks: thanks to Professor Mario Draghi for his efforts to reduce Government deficits, thus lifting much of the burden of real reforms off Irish political elites shoulders.

Let me explain. According to the CSO data, interest on Irish State debt obligations (excluding finacial services rescue-related measures) amounted to EUR 5.768 billion in 2011, rising to EUR7.298 billion in 2012 and peaking at EUR 7.774 billion in 2013. This moderated to EUR 7.608 billion in 2014, just as Professor Mario started his early-stage LTROs and TLTROs QE-shenanigans. And then it fell - as QE and QE2 programmes really came into full bloom: EUR6.854 billion in 2015 and EUR6.202 billion in 2016. Cumulative savings on interest since interest payments peak amounted to EUR2.65 billion.

That number equals to 75% of all cumulative savings achieved on the expenditure side (excluding capital transfers) over the entire period 2011-2016. That's right: 3/4 of Irish 'austerity' on the spending side was accounted for by... reduction in debt interest costs.

Say, thanks, Professor Mario. Hope you come visit us soon, again, with all your wonderful gifts...


21/7/17: Ireland: a Poster Child for Austerity through Taxes


Ever since the beginning of the Crisis in 2008, Irish policymakers insisted staking the claims to the heroic burden sharing of the post-Crisis fiscal adjustments across the entire society, the claims closely mirrored by the supporting white papers, official state-linked think tanks and organizations, and even the IMF.

Time and again, independent analysts, myself included, probed the State numbers and found them to be of questionable nature. And time and again, Irish political and policy elites continued to insist on the credit due to them for steering the wreck of the Irish economy out of the storm's path. Until, finally, by the end of 2016, Ireland officially was brought to enjoy falling official debt burdens and drastically declining deficits. The Hoy Grail of fiscal sustainability, delivered by FF/GP and subsequently (and especially) the FG/LP coalitions was in sight.

Well, here's a new instalment of holes that the official narrative conceals. CSO's latest data for full fiscal year 2016 on headline fiscal performance metrics was published earlier this month. It makes for an enlightening reading.

Take a simple chart:

Here, two figures are plotted against each other:

  • General Government Expenditure, less Capital Transfers (the bit that predominantly is skewed by 2011 banks resolution measures); and
  • Taxes and Social Contributions on the revenue side.
The two numbers allow us to compare the oranges and oranges: policy-driven (as opposed to one-off) revenues and policy-driven (as opposed to banking sector's supports) expenditures. Fiscal discipline is the distance between the two.

And what do we see in this chart? 
  1. Gap between tax revenues and non-capital transfers spending shrunk EUR899 mln in 2012 compared to 2011 and proceeded to fall EUR2.698 billion in 2013, EUR 4.22 billion in 2014, EUR 4.416 billion in 2015 and EUR1.815 billion in 2016. So far - good for 'austerity' working, right?
  2. Problem is: all of the reductions came courtesy of higher tax take: up EUR 1.567 billion in 2012 compared to 2011, EUR2.107 billion in 2013, EUR4.525 billion in 2014, EUR4.724 billion in 2015 and EUR2.713 billion in 2016.
  3. All said, over 2011-2016, cumulative reductions in ex-capital transfers tax deficit were EUR14.05 billion, but tax increases were EUR15.66 billion, which means that the entire story of Irish 'austerity' was down to one source: tax take increases. The Irish State did not cut its own spending. Instead, it raised taxes and never looked back.
  4. In fact, ex-capital transfers spending rose not fall, even as labor markets gains cut back on official unemployment. In 2011, ex-capital transfers Irish State spending was EUR71.403 billion. This marked the lowest point for expenditure in the data set that covers 2011-2016. Since then, 2015 expenditure was EUR72.113 billion and 2016 expenditure was EUR 73.011 billion.
  5. So there was no aggregate spending austerity. None at all.
  6. But there was small level of austerity in one category of spending: social benefits. These stood at EUR28.827 billion in 2011, rising to the cyclical peak of EUR29.454 billion in 2012, then falling to EUR28.526 billion in 2013 and to the cyclical low of EUR28.076 in 2014. Just as the labor markets returned to health, 2015 social benefits spending rose to EUR28.421 and 2016 ended up posting expenditure of EUR28.494. So the entire swing from peak spending during the peak crisis to the latest is only EUR418 million. Granted, small amounts mean a lot for those on extremely constrained incomes, so the point I am making is not that those on social benefits did not suffer due to benefits cuts - they did - but that their pain was largely immaterial to the claims of fiscal discipline.
So what do we have, folks? More than 100% of the entire fiscal health adjustment in 2011-2016 has been delivered by the rise in tax take by the State - the coercive power whereby money is taken off the people without providing much a benefit in return. That, in the nutshell, is Irish austerity: charging households, many struggling with debt, loss of income, poorer health and so on, to pay for... what exactly did we pay for?.. I'll let you decide that.