Friday, August 23, 2019

Irish prices 27% above EU average, adjusted disposable income below

In 2018 Ireland had the second-highest prices of consumer goods and services in the European Union.  Denmark was on top at 38% above the average. It appears Luxembourg was level with Ireland but about 40% of the duchy's workforce live beyond its borders. Germany was just 4% ahead while Britain was at 17%. The Irish difference with Spain was 34%.

Ireland was the only EU member country to have experienced a fall in consumer prices in 2008-2012 and it's level was 18% above the EU average in 2013.

The data below corroborate other data on the standard of living related to income that I have previously posted.

Ireland remains behind the EU average and Italy despite the latter's years of stagnation.

The high cost of living in Ireland, of course, has consequences.

Ireland's 2018 standard of living per capita below EU28 average

Irish median income at 13th in Europe, UK at 14th rank

Wealth often depends on home ownership and more than half of the population in each EU member state lived in owner-occupied dwellings in 2017, ranging from 51.4% in Germany up to 96.8% in Romania. In rich Switzerland, an associate EU member, the proportion of people who lived in rented dwellings in 2017 outweighed those living in owner-occupied dwellings, as some 58.7% of the population were tenants. In the Netherlands (60.7 %) and Sweden (52.2 %), more than half of the population lived in owner-occupied dwellings with a mortgage or loan; this was also the case in Iceland (63.9 %, 2016 data) and Norway (60.5 %).

According to Eurostat the share of people living in rented dwellings with a market price rent in 2017 was less than 10.0 % in 11 of the EU states. By contrast, close to two-fifths of the population in Germany (40.0 %) and Denmark (37.7 %) lived in rented dwellings with a market price rent, as did about three tenths of the population in Sweden (34.0 %), Austria (30.1 %), the Netherlands (29.8 %), and around one fifth in Greece (21.0 %), Luxembourg (20.8 %) and France (19.2 %). The share of the population that lived in rented dwellings with a market price rent was even higher in Switzerland where it just exceeded half (50.9 %). The share of the population living in a dwelling with a reduced price rent or occupying a dwelling free of charge was less than 20.0 % in all of the EU states and the six non-member countries for which data are shown.

In 1991 Irish homeownership peaked at 79.3% (partly reflecting the Government offloading social housing) and was down to 67.6% according to Census 2016.

A reliable Irish income per capita ratio?

It's well known that GDP (gross domestic product) is not a reliable metric of Ireland's economic performance.  

Ireland's Department of Finance in a paper in 2018  referred to "Modified Gross National Income" as an "attempt to control for (part of) the impact of globalisation on Irish macro-economic statistics...the data are not yet available in ‘real’ terms."

Following the jump in GDP by 26% in 2015, called 'Leprechaun economics' by Paul Krugman, the New York Times columnist and Nobel laureate, the Irish Central Statistics  Office produced a Modified GNI (gross national income)  but it only accounts for 3 of the big distortions to the National Accounts  1) depreciation  of thousands of leased commercial aircraft 2) depreciation of R&D related to IP (intellectual property) that was assigned to Ireland by the likes of Apple 3) inflows of redomiciled or mainly large US companies that have become "Irish" for tax avoidance purposes.

There is no account taken of the massive distortions on the trade side or changes in profits shifting.

For example, Net Trade (exports value minus imports) or the Trade Surplus grew from €49bn in 2016 to  €113bn in 2018 but that may just reflect the timing of multinational transfers. The $144bn in Irish non-bank holding company affiliates at the end of 2018, likely was in US onshore banks.

The Balance of Payments is also affected by exaggerated inward and outward FDI (foreign direct investment values).

US investment in Ireland in 2018 of $442bn compares with $140bn in Germany and $116bn in China but the jobs provided are 120,000; 700,000+ and 1.75m respectively

What is posted here gives a more accurate estimate of the standard of living per capita based on consumption.

In May 2018 the Economic and Social Research Institute (ESRI) said it had become “practically impossibleto gauge economic activity in Ireland or work out an estimate of sustainable growth with the current set of indicators.

The think tank said headline growth and its components were being distorted by large transactions involving a select number of firms.

“As the economy is growing very strongly, we do need to be able to come up with an estimate of sustainable growth and it is practically impossible to do so with the current set of national accounts,” said Kieran McQuinn, an ESRI research professor.

On income in 2016, 17 of the 35 Organisation for Economic Cooperation and Development (OECD) mainly rich countries had some form of mandatory or quasi-mandatory private pension system in place, ensuring a high coverage of the working-age population. In Finland, Iceland and Switzerland, occupational pensions are mandatory and cover more than 70% of the working-age population.

In Ireland, there is only a 29% occupational pensions coverage of private-sector workers and the value of pensions or their lack, are not highlighted in income data.

Adjusted disposable income per capita 

Eurostat, the EU's statistics office, strips out price differences of countries in respect of the consumption of goods and both public and private services. The adjusted gross disposable income of households per capita in PPS (purchasing price standards) had EU averages for 2017 and 2018 of 22,158 and 22,839 while the Euro Area was at 23,635 and 24,252.

Eurostat says that "the use of PPPs (purchasing power parities) ensures that the adjusted disposable of all countries is valued at a uniform price level and thus reflects only differences in the actual volume of the economy." See here.

There are complete data for 26 countries in 2017 (Croatia and Malta are missing) and Ireland had a 12th ranking at 20,760. Ireland had a level of 20,948 in 2007.

Germany was at 28,473; France 25,022; UK 23,597; and Italy 21,869. See list of countries here or the chart at bottom of this page.

The adjusted gross disposable income of households per capita in PPS is calculated as the adjusted gross disposable income of households and Non-Profit Institutions Serving Households (NPISH) divided by the purchasing power parities (PPP) of the actual individual consumption of households and by the total resident population.

Wages accounted for 36.1 % of the EU’s household disposable income in 2017, and social benefits for 24.4 %.

In 2017, the household saving rate was 9.6 % in the EU-28 and 11.8 % in the Euro Area while the EU’s household investment rate was 8.2 % in 2017, with double-digit rates recorded in Finland, the Netherlands, Cyprus, Belgium and Luxembourg.

Germany accounted for the highest share of the EU-28’s gross household adjusted disposable income, 21.2 % of the total, followed by the UK (16.1 %) and France (15.8 %).

Taxes at -15% were slightly changed from -14% in 2007 (see chart above).