Dude, Where’s My Anglo-Irish Promissory Note Dividend?

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Remember back to the renegotiation of the debt repayments on the Anglo-Irish promissory note last year?  Amidst the sound of champagne corks popping we were told we would get a budgetary dividend of approximately €1 billion.  Overnight, our deficit was projected to fall from an estimated 3 percent in 2015 to 2.2 percent.  Less tax increases, less spending cuts.  Of course, we had to be quiet about all this – for fear of frightening the monetary-financing horses over at the ECB.  But what it meant was less fiscal pain.

So what happened to the dividend?  In short, it’s disappeared.   Under the latest Government projections, the deficit has quietly but firmly gone back up again.


After the deal, the deficit in 2015 was projected to fall to €3,955 million (prior to the deal it was projected to be €5,325).  However, in the Government’s latest Stability Programme Update, the deficit has increased – back up to €5,235.  In percentage terms, the projected deficit yo-yoed – falling from to 2.9 percent of GDP to 2.2 percent after the deal, only to bounce back up to 2.9 percent.

So, instead of facing into a budget that needs to find €2 billion in fiscal adjustments, we should have only needed an €800 million adjustment.  And when you factor in the ESRI’s claim that, apart from water charges revenue, we wouldn’t need any more fiscal adjustments, then we should be facing into a budget where the Government could run expansionary policies (increase spending, cut taxes) and still meet the EU budgetary targets.

So what went wrong?

Three things happened.

  • First, the Government had to revise downward tax revenue – by nearly €650 million.  In particular, they had to revise down revenue from current taxes on income and wealth, by a massive €1 billion.  This category is mainly made up of income tax (including USC), corporate tax and capital gains.  Remember this when you hear talk about the Government ‘hitting its targets’.
  • Second, the Government had to revise upward its spending targets – by €600 million.  Spending on employee compensation (wages, salaries and pensions) are over €1 billion higher than expected though this isn’t too much of a problem as both the Nevin Economic Research Institute and the ESRI has shown that movements in employee compensation levels have little impact on the deficit.  In addition, ‘subsidies’ has been revised upwards – by over €1.1 billion.  These are subsidies to businesses (or ‘producers’).  It would be interesting to see a breakdown of that.
  • Third, the Government revised down the level of GDP.    Between 2013 and 2014, the Government revised down GDP by a substantial €7.1 billion.  The lower the GDP, the higher the deficit – as a percentage.

There may be knock-on effects of the trickery in the last budget where a €2.5 billion adjustment was actually a €3.1 billion adjustment (including temporary measures) but we were all relieved because it was only a €2.5 billion adjustment; and, in any case, it was ok because it got the stamp of approval from the Irish Fiscal Advisory Council.  Is that little sleight-of-hand now impacting on next year’s budget?

The bottom-line, however, is that after all that fanfare, about how the Government’s deal on the Anglo-Irish promissory note was going to have a positive impact on the economy and households – its’ all gone up in a fiscal smoke.

Sometimes, you have to try very hard not to be cynical.

Photo: IBRC chief executive Mike Aynsley carries the old Anglo logo away from the bank’s headquarters on St Stephen’s Green. Credit: Eamonn Farrell/Photocall Ireland