dependence on sources of tax revenue such as stamp duties, capital gains tax and corporation profits tax made total tax revenues dependent to an exceptional degree on profitable economic conditions, high transactions in the property market and asset price appreciation ( chart 2 ). all tax systems tend to do better in such conditions, but the elasticity of tax revenue response to a return to more normal conditions was exceptionally high in ireland. of course tax revenues have slumped, and expenditure has soared in all of the countries affected by the global downturn of 2008 – 9 and the slow recovery that is now in process. ( the taxes and spending programmes that behave in this way are normally seen as stabilizing, and indeed are called the automatic stabilizers. ) but the deterioration in ireland ’ s fiscal position has been worse than almost any other country. partly of course this reflects the fact that ireland ’ s home - grown property bubble had risen further and so has fallen further than most ( chart 3 ). but it also reflects the heightened elasticity of the tax receipts. interestingly, when you plot tax and current expenditure as a percentage of gdp, you might miss this ( chart 4 ), masked as it is by the scale of the collapse in gdp – tax receipts fell even faster despite big increases in rates and base especially in income tax as the government tried to make up for the shortfalls elsewhere. that is one of the main reasons why ireland ’ s exposed fiscal position, with which the government has been struggling for the past two and a half years and which will be the subject of intensified corrective action to be set out in detail in the promised 4 year fiscal programme to be announced shortly, is so exceptional. chart 2 chart 3 chart 4 how could one use accounting numbers to improve the usefulness of the sgp for ensuring sustainable public finances? i have some ideas on this to which i will return after i speak a little about accounting and the irish banks. a full account of the government finances is not complete in ireland without considering the banks. over the past year or more there has been intense interest in figuring out what will be the total cost of the losses incurred in the property bubble. indeed this has been a focus of attention worldwide, with for example the imf ’ s world economic outlook report devoting attention to the issue in each of its five semi - annual reports between april 2008 and april 2010. interestingly, the estimated losses for the global financial system from this source have oscillated, growing from the first

drawn out drip - feed process of nama tranche announcements based on each successive size - tranche was in prospect. in order to avoid this, nama agreed to conduct a sample review of the full range of tranches. the resulting estimated all - tranche nama haircut for each bank was the basis of the end - september announcement which led to an increase in the required capital of aib, and to confirming the judgment that aib would not be able to raise all of the needed capital from the market. the costs of anglo depended even more heavily on its nama haircuts, given the relatively high fraction of its portfolio being transferred. on the other hand, not being in the market to raise capital, an official judgment on the expected losses for its non - nama book was not needed until the final decision was taken by government on that bank ’ s future. nevertheless, it was important to acknowledge that the surprisingly high first tranche haircut for anglo, if read across to the rest of the nama - bound book, already at that point implied an astonishing figure of at least €22 billion for the net long - term fiscal cost to the state, given the relatively aggressive provisioning already made then by the new management on the non - nama book. as is well - known, nama ’ s estimated all - tranche haircut has somewhat increased this. in addition, the management ’ s evolving estimates of the prospective loan losses embedded in the non - nama book have also been increasing, leading to our recently published estimate of the additional capital required to capitalize the resolution and funding entities into which anglo is to be resolved. ( by the way, as accounting specialists you will recognize that required capital is different to net cost : if the expected loss projections prove to be accurate, the net long - term fiscal cost will be lower than the required capital sum to the extent that the tender offer on subordinated debt is successful and to the extent that residual capital remains at an eventual wind - up. ) to summarize, then, four main components have been key to arriving at a total cost figure for the losses created by the bubble, and exposed by its bursting : nama ’ s first tranche haircuts and the central bank ’ s non - nama expected loss estimates for the main banks ( both published in march ) ; nama ’ s estimated all - tranche haircuts and the central bank ’ s required capital estimate for anglo,