A far cry from threats of “economic bombs” going off in Dublin, the warm tone of Minister for Finance Paschal Donohoe as he announced the early repayment of bailout loans this week was indicative of the relative calm waters in which the State finds itself these days.
The "support, friendship and solidarity" of the International Monetary Fund (IMF) and European partners "will not be forgotten", he said, six years on from that now-infamous phone call from the ECB's Jean-Claude Trichet to Michael Noonan.
Noonan and the government of the day stayed the Troika’s course – averting Trichet’s wrath – and, now, Donohoe finds himself in the enviable position of taking office on Merrion Street as the chickens bound gleefully home to roost.
The plan is to execute an early repayment of the remaining €4.5 billion owed to the IMF and €1 billion given to the State in 2010 by Denmark and Sweden.
The move depends on all European Union states agreeing to waive the right of two EU bailout facilities – which gave Ireland €40.2 billion during the crisis – to seek early repayment at the same time.
We also owe the UK £3.23 billion (€3.5 billion), but the Department of Finance will hold off on repaying that early as doing so would trigger a €200 million penalty under a break clause attached to the facility.
Donohoe is currently up to his neck in preparations for Budget 2018, which is only a month away. Despite the improvement in the economy and the public finances over recent years, there is still limited enough scope for a spending splurge.
For starters, Exchequer returns for the first eight months of the year show the Government collected just under €30.5 billion in taxes for the period, which was €209 million less than it expected at the start of the year.
The below-par performance was again down to income tax, which came in below profile at €12.2 billion, which was 1.8 per cent or €221 million less than projected.
One budgetary proposal under consideration is to remove the PAYE and earned income tax credits on higher levels of income. However, the UK-based Institute for Fiscal Studies warned this would create an effective marginal tax rate of 64.1 per cent on income between €100,000 and €120,000, far in excess of the current top rate of 52 per cent.
Another way Donohoe might seek to raise cash is by increasing excise duty on wine, with sales booming again as a record-equalling nine million cases were sold last year. Unsurprisingly, the industry has warned against such a move.
Elsewhere, the indicators are good for the economy. The Central Statistics Office last month recorded one of the largest monthly drops in people signing on the live register since records began, while unemployment dropped to just 6.3 per cent.
Glass-half-empty scenario for tourism industry
As the budget approaches, so too do the lobbyists; but with Brexit barrelling down the tracks, there is every reason for caution.
A warning from the chairman of the Fiscal Advisory Council this week painted the vista that a hard Brexit could have a greater impact on the Irish economy than anticipated in current forecasts.
“To be fair, they are building in a hard Brexit scenario, but it could have an impact on long-term growth rate, potential growth rates and possibly revenue,” said Seamus Coffey.
One area that is likely to be hit hard is tourism, with visitors from the UK expected to drop. According to a report commissioned by the Drinks Industry Group of Ireland, this could lead to a €70 million fall in revenue for the Irish economy.
“Our tourism sector remains overly reliant on the UK, a market that is already contracting and set for years of economic uncertainty,” said Donal O’Keeffe, chief executive of the Licensed Vintners Association.
O’Keeffe is unlikely to have been enamoured, then, with the Irish Congress of Trade Unions, which called for the abolition of the special 9 per cent VAT rate for the hospitality and tourism sectors in its pre-budget submission to Government.
Congress general secretary Patricia King said the reduced rate of VAT represented a “de facto subsidy that had already cost the State some €2.2 billion in taxes foregone”.
“In fact, all the evidence suggests that the reduced rate operates as a subsidy to very profitable corporations, which is a waste of valuable resources when set against areas of obvious need such as homelessness,” she said.
For its part, the Irish Tourist Industry Confederation called on Donohoe to increase the State’s capital expenditure for the development of new visitor attractions to €60 million per year for the next decade.
“The current allocation of only €106 million over a six-year period is wholly inadequate for tourism’s needs,” it said, before predicting that Brexit will cost the Irish tourism industry €100 million in 2017.
Are homebuilding initiatives a house of cards?
Following the deaths of a number of homeless people over the past couple of weeks, there is renewed pressure on the Government to get to grips with the housing crisis.
A report by analyst Davy this week said the State may need to build as many as 50,000 houses per year to meet demand, a much higher number than previously thought.
“Government policy seems focused on boosting supply by helping construction sector profitability,” it said. “This is likely to drive house prices higher, facilitated by an accommodative mortgage market.”
Furthermore, it said the official figure for housing completions of 14,900 “probably overstates the true level of homebuilding by a factor of two”, bringing the actual level of completed homes closer to 7,500 per year.
What’s more, it said double-digit house price gains were “likely to persist longer”, and cited Fianna Fáil’s proposal to cut the rate of VAT on house-building in the budget. Donohoe has, however, ruled that out.
He said there was “no guarantee” the cut would lead to the construction of more houses, and called it a “repeat of the policies of the past”.
Meanwhile, Cairn Homes chief executive Michael Stanley insisted new home prices are not driving the “pretty scary” Irish residential property value growth. Recovering builders, he said, are more interested in selling at pace to gather equity.
Stanley was speaking after the housebuilder reported a 191 per cent first-half surge in gross profit to €7.7 million on the same period last year.
Separately, the State’s main mortgage lenders ruled out following an initiative from Permanent TSB, which wrote to a couple of hundred buy-to-let borrowers in default, offering to forgive any arrears or shortfalls on the sale of a property if they agree to a voluntary surrender.
Ill wind from Russia threatens Dublin financial companies
On the international front, new research by Trinity College academics James Stewart and Cillian Doyle warned that Russia’s escalating banking crisis is likely to end up increasingly hitting some Dublin-based companies.
The companies at risk are those which have become a favoured vehicle for Russian lenders to raise funds internationally. The paper highlighted cases where holders of bonds issued by Russian-linked Irish special purpose vehicles were hit as the related banks ran into trouble.
Elsewhere, Irish Stock Exchange chief executive Deirdre Somers said the bourse operator is “well-positioned” for Brexit challenges and opportunities as it reported a 21 per cent profit increase in 2016.
Profit after tax at the company, owned by a club of Dublin-based stockbrokers, rose to €8 million from €6.6 million for the previous year as listing revenues for international debt, funds and equities increased 5 per cent to €19 million and operating costs dipped.
