Institutional Sector Accounts Non-Financial Quarter 1 2023

Government (S.13)

The government surplus (net lending, B.9) was €1.8bn in the first quarter of 2023. This was a €2.2bn improvement on net borrowing of €0.4bn in the equivalent quarter of 2022. The improved position this quarter was due largely to increased revenues.

On the income side, revenue from taxation was up due to higher earnings, and higher profits in the economy as a whole. Taxes on income and wealth (D.5) went from €9.6bn to €11.6bn when we compare the first quarter of the previous year. There was also a more modest increase in VAT-type taxes on products (D.2) of €0.3bn.

On the expenditure side, the COVID-19 subsidies which were still being paid in the first quarter of last year were absent this year, so total subsidies (D.3) halved to €0.6bn in the quarter, which is similar to their pre-pandemic level. However, new payments introduced to deal with the increase in the cost of living led to net Other Transfers (D.7) nearly doubling to €1.6bn in the first quarter of 2023.

Non-Financial Corporations (S.11)

The Gross Value Added (GVA, B.1g) of Non-Financial Corporations, which drives Ireland's GDP, was 6% (€5.4bn) higher in the first quarter of 2023 compared to the equivalent quarter last year (see table below). The growth in GVA by activity is illustrated in Figure 2.2. While in many recent quarters the growth had been concentrated in the MNE-dominated Industry sector (excluding Construction), this quarter it was more evenly spread. The domestically-focused Distribution, Transport, Hotels and Restaurants saw significant growth in value added over the first quarter of 2022. Professional, Administration & Support Services was the only sector to show a contraction in the period.

The €5.4bn growth in GVA included an increase of €1.7bn in pay to workers (D.1) and €3.2bn in profit (B.2A3G). The additional profit then flowed out to the owners of the corporations in other countries as investment income (D.4 net was up €3.3bn), with an extra €1.3bn being paid to the Irish government as corporation tax (D.5). This led to a 5% reduction in the gross saving (B.8g) of the sector from €31.9bn to €30.4bn. 

Capital Investment by Non-Financial Corporations

The large assets of intellectual property acquired in the last ten years are now depreciating rapidly, and this decline in value (consumption of fixed capital, CFC) now exceeds new investment (€28bn compared to €22bn). The sector is effectively disinvesting in capital assets here.

The levels of capital investment since 2015 have been extraordinary and it was almost inevitable that CFC would exceed capital formation as the latter could not keep up the pace of those years.

The net disinvestment is relevant to the 'saving less investment is the current account balance' identity (see next chapter). This sector makes a significant contribution to Ireland's current account balance (its investment in the rest of the world): gross saving less investment is around €8bn for Non-Financial Corporations out of a total current account balance of €14bn. In most cases, we would infer that saving is invested in assets here and in the rest of the world.

However, the Non-Financial Corporations sector is contributing to the current account balance while its net investment in fixed capital here is negative. While gross saving less investment is around €8bn, gross saving less CFC is around €3bn (see Table 2.2).

The fact that saving less CFC is so much lower than saving less investment means the saving-investment-current account balance equation requires more careful interpretation in the case of Ireland. The current account balance reflects a gross saving which does not show the net decline in the value of fixed assets here. As with so many other macro-economic indicators, the meaning of the current account balance for Ireland's economy may be slightly different to that for other countries’.

Financial Corporations (S.12)

Financial corporations (S.12) had €4.2bn GVA in the first quarter of 2023, an 8% increase on the same quarter of 2022. There was an increase of €192m (8%) in pay to workers in the sector, and profit (B.2A3G) was €118m (7%) up. In this sector, the investment income (D.4) resources (received) and uses (paid), are much larger than the value added, and have a bigger impact on the saving (B.8G) and net lending (B.9). The flows of this investment income, both in and out, grew by around 50% in the year since Q1 2022. As the growth in outflows exceeded the inflows, the sector was a net borrower of €1,427m more in the first quarter of this year than in the first quarter of last year.

As we can see from International Accounts Table 1.5, the investment income (primary income) is mostly paid and received by Other Financial Intermediaries, such as non-pension investment funds, and most of this is paid to, and received from, the rest of the world. Thus, while the value of transactions are very high in the sub-sector, they have limited impact on the domestic economy. Further details are given in the International Accounts.