Good News on the Economy from Europe but a Warning?

Paul Sweeney27/04/2017

There is some good news on the Irish economy from Eurostat. But hidden in the text is a warning to another member state, Luxembourg, that may threaten us in the next quarter, if the European statistical police, based in Luxembourg, find out how lavish and spendthrift the government has been, and intends to continue to be, with certain public assets.

The latest Eurostat news shows that in 2016, the lowest government deficit as a percentage of GDP was Ireland (-0.6%). We are followed by Croatia (-0.8%) and Denmark (-0.9%). Four member states had deficits equal to or higher than 3% of GDP: Spain (-4.5%), France (-3.4%), Romania and the United Kingdom (both -3.0%). The average in the Euro area was 1.7%

This was filed under the first 2017 notification by EU member states for the years 2013-2016, for the application of the excessive deficit procedure (EDP), which is policed by Eurostat. This means that under the fiscal hawk regime of the Stability and Growth Pact rules, Ireland is doing very well – best in the class on the deficit – from having been the worst, just a few years ago.

National Debt

Furthermore, our national debt last year at 75% of GDP was well below the average in the Euro area of 89.2%. Again a big achievement and it is lower today than last year. Also, our level of inflation is the second lowest in the EU per Eurostat though it uses HICP, not the Consumer Prices – another measure.

At the end of 2016, the lowest ratios of government debt to GDP were recorded in Estonia (9.5%), Luxembourg (20.0%), Bulgaria (29.5%), the Czech Republic (37.2%), Romania (37.6%) and Denmark (37.8%).

Sixteen member states had government debt ratios higher than 60% of GDP, with the highest registered in Greece (179.0%), Italy (132.6%), Portugal (130.4%), Cyprus (107.8%) and Belgium (105.9%). Germany is at 68.3%, uncomfortably above the target of 60%.

Public Spending

In 2016, government expenditure in the euro area was equivalent to 47.7% of GDP and government revenue to 46.2%. The figures for the EU28 were 46.6% and 44.9% respectively. For Ireland the level of public spending is far lower being a mere 28% of GDP.

However this GDP is not a good indicator for spending and GNP or GNI would raise our level into the early 30% plus – still low compared to the more “civilised” European states. (It was Wendle Holms who said “I like to pay my taxes, with them I buy civilisation”).

Taxes Fund Public Services

Listening to Morning Ireland, with all the demands for better public services, better health hospitals (to give away, but we can still use them) transport, social housing etc, one would wonder when the link between taxes and public spending will ever be made by so many people and many though not all, politicians.

Of course it suits the Right when it advocates tax cutting. Daftest idea of all is Trump’s plan to finance his proposed cuts in corporate taxes by the resultant huge, unproven increases economic activity.

Inflation

Irish inflation is only 0.6% annual to March 2017 per Eurostat with only Romania behind us at 0.4%. Tops are five Eastern European countries with rises from 2.6 to 3.3% and the average is down to 1.5% from 2% in year to March 2016.

Per CSO data, Irish inflation today (CPI) is slightly lower (1%) than it was in 2008. But it has been rising since November 2016 for the first time for many years. The biggest rises in the year were increases in transport (+5.3%), restaurants & hotels (+2.2%), miscellaneous goods & services (+2.0%) and health (+1.7%).

 

Footnote:

Finally the Eurostat report states “Eurostat is expressing a reservation on the quality of the data reported by Luxembourg in relation to the sector classification of hospitals.” Interesting and topical here.

Does Eurostat know that the Irish Government builds first class modern hospitals and gives them away for free (free privatisation) to religious orders? As this is not “value for money” a key objective of the Dept of Finance and it undermines the state’s own balance sheet, can we expect to see such a reservation on Ireland from the agency in quarter 2, 2017 if they find out?

Posted in: EconomicsEuropeTaxation

Tagged with: progressivetaxespublic spendingdeficiteurostatNational debtValue for money

Paul Sweeney     @paulsweeneyman

paul-sweeney

Paul Sweeney is former Chief Economist of the Irish Congress of Trade Unions.  He is a member of the Economic Committee of the ETUC and chair of TASC’s Economists’ Network. He was a President of the Statistical and Social Enquiry Society of Ireland, a member of the National Competitiveness Council of Ireland, the National Statistics Board, the ESB, TUAC, (advisor to OECD) and several other bodies. He has written three books on the Irish economy and two on public enterprise, including The Celtic Tiger; Ireland’s Economic Miracle Explained and Selling Out: Privatisation in Ireland, chapters in other books and many articles on economics.


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