Monster government deficits will lead to some huge tax increases after an economic recovery. Who will be targetted?

Patslatt1

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Given historically low interest rates ,governments may be tempted simply to keep borrowing indefinitely like Japan to cover fiscal deficits. The risk in doing so is connected to the significant risk of economic depression in the next decade. This could lead to falling prices in deflation with low nominal rates of interest becoming positive real rates as has happened in Japan, say a 2% nominal rate becoming a 4% real rate with deflation of 2%. If Irish government debt rose to say 150% of the economy, then real interest on government debt of 4% would take 6% of the economy. Add to that the interest on private sector debt and debt service could become very burdensome.
If the EU eventually wants to return to its policy of limiting government debt to 60% of economies to limit debt burdens on Europe's grandchildren, some big tax increases will be inevitable. PAYE has no room for increases since Irish income taxes are among the highest in the EU once taxable income rises above the average pay. Such taxes are difficult to swallow given the modest Irish welfare state benefits.
So other taxable areas will have to be squeezed hard.The most politically astute FF and FG tax policy would be to let the Greens rip on carbon tax increases for which the Greens can be blamed in the next general election. Such increases could see the prices of petrol and diesel at the pump go back to levels approaching the peak of prices over a decade ago. However, despite the docility of Irish public, the government might fear riots like those of rural French Green Jackets triggered by petrol price increases.
The other obvious target for taxes is housing LPT, local property taxes that are very low by international standards. Great variations in housing styles make valuations difficult, so valuations would have to be rough justice in many cases. If FF regards Dublin as a lost political cause, it may favour big increases in LPT as Dublin could generate a lot more tax given very high house prices.
Instead of huge increases in taxes, a sensible proposal would be to freeze public sector pay and pensions until the gap with the private sector pay average is reduced to the same 13% gap as in the UK,a reduction of the Irish premium gap of about 45%. If the economy grows at 3.5% nominal a year, the freeze would need to last seven years. The saving in pay over time would reduce the need for tax increases by maybe one quarter to a third.A precedent for a long term freeze occured in Brazil where pensions of workers in the formerly nationalised industries take half the federal budget.
The political left will call for corporate tax increases even though low corporate taxes on multinationals have been the key driving force of the Irish economy since the late 1950s. Those tax breaks were introduced to revive and modernise the economy after the huge mass emigration of the 1950s that depopulated large swathes of rural Ireland. Raising those taxes would kill the goose that lays the golden egg and Ireland doesn't have a strong indigeneous manufacturing sector to replace multinationals.
 
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neiphin

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Given historically low interest rates ,governments may be tempted simply to keep borrowing indefinitely like Japan to cover fiscal deficits. The risk in doing so is connected to the significant risk of economic depression in the next decade. This could lead to falling prices in deflation with low nominal rates of interest becoming positive real rates as has happened in Japan, say a 2% nominal rate becoming a 4% real rate with deflation of 2%. If Irish government debt rose to say 150% of the economy, then real interest on government debt of 4% would take 6% of the economy. Add to that the interest on private sector debt and debt service could become very burdensome.
If the EU eventually wants to return to its policy of limiting government debt to economies to limit debt burdens on Europe's grandchildren, some big tax increases will be inevitable. PAYE has no room for increases since Irish income taxes are among the highest in the EU once taxable income rises above the average pay. Such taxes are difficult to swallow given the modest Irish welfare state benefits.
So other taxable areas will have to be squeezed hard.The most politically astute FF and FG tax policy would be to let the Greens rip on carbon tax increases for which the Greens can be blamed in the next general election. Such increases could see the prices of petrol and diesel at the pump go back to levels approaching the peak of prices over a decade ago. However, despite the docility of Irish public, the government might fear riots like those of rural French Green Jackets triggered by petrol price increases.
The other obvious target for taxes is housing LPT, local property taxes that are very low by international standards. Great variations in housing styles make valuations difficult, so valuations would have to be rough justice in many cases. If FF regards Dublin as a lost political cause, it may favour big increases in LPT as Dublin could generate a lot more tax given very high house prices.
Instead of huge increases in taxes, a sensible proposal would be to freeze public sector pay and pensions until the gap with the private sector pay average is reduced to the same 13% gap as in the UK,a reduction of the Irish premium gap of about 45%. If the economy grows at 3.5% nominal a year, the freeze would need to last seven years. The saving in pay over time would reduce the need for tax increases by maybe one quarter to a third.A precedent for a freeze occured in Brazil where pensions of workers in the formerly nationalised industries take half the federal budget.
The political left will call for corporate tax increases even though low corporate taxes on multinationals have been the key driving force of the Irish economy since the late 1950s. Those tax breaks were introduced to revive and modernise the economy after the huge mass emigration of the 1950s that depopulated large swathes of rural Ireland. Raising those taxes would kill the goose that lays the golden egg and Ireland doesn't have a strong indigeneous manufacturing sector to replace multinationals.
go away with your mind numbping domesday shít
 

Lumpy Talbot

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No
Don't worry, Pat, all that official corporation tax take at 12.5% will fill the gap, no doubt.
 

Catapulta

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We have nearly QUADRUPLED the National Debt in little over a Decade!

From circa 60 billion in 2009 to 230 Billion today!


As we are now heading into a severe Crash of the Economy

- & as just about nearly everywhere else on the Globe will do the same

- then the possibility of a complete collapse of living standards and thus political and social chaos is now a very real possibility.

Be Afraid - be very Afraid...... :oops:
 

Sync

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Lumpy Talbot

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No
I was much more worried about the corrosive effect of the banking debt on growth (and by growth I don't mean the crap numbers published every year, I mean economic development) between 2007 and 2011.

I've stopped worrying about national debt levels because a rather nice thing has happened in that everyone's national debt has now ballooned. And will continue to balloon for quite some time.

It is a much more secure situation when you aren't an outlier, and the good news is that Ireland's economy is so open that it staggers at every international sneeze but this isn't a liquidity crisis, it is measurable, can be valued, sliced, diced and sold eventually. So the markets are fine with anything that can be quantified, the noughts on the end always become irrelevant over time and everyone is carrying debt levels that economically don't look sustainable but will become sustainable over time as the markets consume it all.

I'd be worried if the path out of the economic shock was less clear but in fairness this one has pretty lights down the pathway to guide us through the smoke and haze.
 

Angler

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I would say that Property Taxes are an obvious choice , and that means all Property including Agricultural .
 

Sync

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I was much more worried about the corrosive effect of the banking debt on growth (and by growth I don't mean the crap numbers published every year, I mean economic development) between 2007 and 2011.

I've stopped worrying about national debt levels because a rather nice thing has happened in that everyone's national debt has now ballooned. And will continue to balloon for quite some time.

It is a much more secure situation when you aren't an outlier, and the good news is that Ireland's economy is so open that it staggers at every international sneeze but this isn't a liquidity crisis, it is measurable, can be valued, sliced, diced and sold eventually. So the markets are fine with anything that can be quantified, the noughts on the end always become irrelevant over time and everyone is carrying debt levels that economically don't look sustainable but will become sustainable over time as the markets consume it all.
Yeah I strongly agree with the above. The EU solution's going to be to print money, take on debt and invest. We're down with that.

And because Ireland's SO dependent on corp tax from international firms, well that's working out ok. Because if you look at who's in that top 10 of Corporation payers, you've got Apple, Google, Microsoft, Medtronic etc. Companies who have had a really good last 4 months.

The exposure feels far reduced to 2008.
 

Patslatt1

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Don't worry, Pat, all that official corporation tax take at 12.5% will fill the gap, no doubt.
Thanks for the smart remark. A surprising number of US companies moved their head offices here to avoid US corporate tax that was nominally the world's highest until Trump's tax cuts, giving us a free gift of their global corporation tax.
All political parties except the hard left never forgot the lesson of the 1950s emigration that bled the country white, persuading the government to open up the economy to international competition and entice manufacturing to Ireland with grants and very low corporate taxes.
 

Patslatt1

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Yeah I strongly agree with the above. The EU solution's going to be to print money, take on debt and invest. We're down with that.

And because Ireland's SO dependent on corp tax from international firms, well that's working out ok. Because if you look at who's in that top 10 of Corporation payers, you've got Apple, Google, Microsoft, Medtronic etc. Companies who have had a really good last 4 months.

The exposure feels far reduced to 2008.
Germany still has a frugal mentality and historic aversion to money printing given the destructive hyperinflations of the 1920s and WW2. Stimulus spending and money printing in the USA is a lot bigger relative to its economy than the EU. Italy and Spain may get stuck in an economic depression, with Italy chronically incapable of radical economic reforms needed for recovery. Taxes are maxed out in the EU,limiting fiscal stimulus.
 

shiel

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We have nearly QUADRUPLED the National Debt in little over a Decade!

From circa 60 billion in 2009 to 230 Billion today!


As we are now heading into a severe Crash of the Economy

- & as just about nearly everywhere else on the Globe will do the same

- then the possibility of a complete collapse of living standards and thus political and social chaos is now a very real possibility.

Be Afraid - be very Afraid...... :oops:
The question is do we repeat the policy that bankrupted the country in 2010.

The reason the country had to be bailed out in 2010 was that the Irish government spent 103bn euro and took in 53bn euro in that year.

That was a world record 30% of GDP deficit.

To put that in perspective the Irish government spent only 19bn euro in 1997.

This year we are talking about borrowing 30bn euro.

Are we going in the same direction as in 2010 or will the EU be in a better frame of mind this time seeing that other countries will be in a similar position?

In 2010 it just us and Greece.
 

making waves

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After getting his rear-end handed to him on the Roubini thread - patslatt is back trying to pretend he knows something about economics :rolleyes:
 


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