Central Bank publishes signed articles in advance of Quarterly Bulletin 4 2015

The Central Bank of Ireland today pre-releases two signed articles from the forthcoming Central Bank Quarterly Bulletin 2015 Q4, entitled:

• The Financial Crisis in Ireland and Government Revenues.
• Locational Banking Statistics in Ireland: Introducing the Enhanced Quarterly Statistics.

The Financial Crisis in Ireland and Government Revenues

This article illustrates trends in tax and non-tax revenues during and after the financial crisis, and what these developments suggest for fiscal policy. The key points are:

• Strengthening income tax receipts have played a key role in driving the recovery in total tax revenue since 2011. Stronger income taxes reflect a combination of direct policy measures – such as the introduction of the USC – and the more general economic recovery;
• Income taxes are the only major tax head to have surpassed their pre-crisis level. They represented 40 per cent of total tax revenue in 2014, up from around a quarter in 2007;
• Relying on stable sources of revenue – such as income tax – rather than cyclically sensitive ones – as was the case with housing related revenues during the boom – is desirable from a public finances perspective and reduces a key vulnerability that developed in Ireland in the last decade;
• Non-tax revenues have increased sharply since the crisis, partly due to measures introduced by the government to assist the financial sector. Such revenue has consistently surprised on the upside, and has helped the achievement of the fiscal targets;
• In net terms, however, the assistance provided to the financial sector has had a significantly negative impact on the government finances, increasing the debt level substantially. With public debt remaining elevated, and therefore a key vulnerability of the economy, there would appear to be a strong case that any unexpected gains from tax and non-tax revenues be used exclusively to reduce public debt.

Locational Banking Statistics in Ireland: Introducing the Enhanced Quarterly Statistics

This article introduces the new locational banking statistics which incorporate a series of enhancements proposed by the Committee on the Global Financial System in the aftermath of the financial crisis. The enhancements introduced include reporting a full financial balance sheet, a full counterparty country and sector breakdown, separation between the types of reporting banks, and a maturity split for debt security liabilities. These enhancements provide greater insights into the dynamics underlying changes in the funding profile and risks for the banking system.

The aggregate balance sheet of the Irish banking system has contracted sharply with the total external assets and liabilities of the Irish-resident banks falling by more than 50 per cent since their peak. These developments are explored here at a granular counterparty and instrument level.

An updated income statement will be introduced as a separate statistical release in October 2015. The new data show that interest income received from loans and deposits by all banks has fallen between Q4 2012 and Q2 2015. By contrast, fees and charges and other fee income has increased. A proportionally greater decrease in expenditure has resulted in a return to profitability, with Irish-resident banks reporting €1.9 billion net profit in Q2 2015.