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That ‘recovery’… January 23, 2017

Posted by WorldbyStorm in Uncategorized.

Fascinating piece in the SBP a few weeks back which I missed at the time but is worth considering for what it tells us about how the current economic situation is read by the orthodoxy.

It notes that the tax take for 2016 was ‘€790m ahead of target’… but it continues:

The sole reason the take was ahead in 2016 was the near €1bn extra of corporation tax the Revenue Commissioners picked up. VAT receipts were more than €410m off target, and income tax – despite a greater number of people in work – was just about ahead. Hence the concern about retail sales.

Figures published by retailers lobby group Retail Excellent Ireland over Christmas showed trading barely on a par with 2015 will make for worrying news. IT’s not enough for the sate to pin the weakness of VAT on people deciding to shop on Black Friday and not hit the high street over Christmas and the New Year. The economy is growing, tax cuts in the previous year’s budget meant that there should be more money to spend and there should be extra VAT flowing in.

Trying to figure out what is happening is perplexing minds. Is it shoppers fleeing across the border in search of bargains? Sterling weaned quite a bit after the Brexit vote but rebounded in November and December limiting the gains that could be had. One theory going around has been that many people ave been putting off spending because of rents and savings for deposits on homes.

Or perhaps it could be that all the above are factors and add in that the ‘recovery’ such as it is is very lop sided – as talking to anyone in business for more than a few moments will testify. It is largely restricted to the East coast and Dublin in particular. So while employment and economic activity there is generally good elsewhere matters are much much worse. And then there’s the matter of wages. They’re not high. Small wonder that in some ways the economy is running to stand still. And yes, all this does mean that there are some very troubling implications for the economy and its potential exposure to international dynamics. But it points to the ‘recovery’ being partial, patchy and perhaps impossible to see taking hold more widely.


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