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Should the Government publish all budget measures needed to get to a 3% Deficit by 2016?


IbrahaimMohamad

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Feb 5, 2013
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Should the Government publish all budget measures needed to get to a 3% Deficit by 2016?

People need certainty as to what their finances will be over the coming years. With a current borrowing requirement of about €13 billion a 3% deficit would mean reducing borrowing to about €5 billion. Many People will be very reluctant to spend money if they are concerned about their income falling.

People still need to plan budgets over the next five years. It would help greatly if Government published their plans now rather than keeping people in suspense for the next number of years. Giving people the fullest information about future budget requirements would help people to budget and help restore more confidence.

Do the Government have more rabbits to pull out of their hats like the Promissory note deal that will ease borrowing by about €2 billion for each of the next ten years?

What is the expectation for revenue side to increase?

Are there political disadvantages to releasing information now rather than keeping future budgets a surprise?
 

feargach

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Before we even address the question we should ask: are any such measures even possible?

A deficit is composed of income and spending. When the former is lower than the latter, there is a deficit. When it's vice versa there is a surplus.

In AFFI (Austerian Fairydust Fantasy Island) getting to a deficit of 3% is easy-peasy-lemon-squeezy (children's TV presenter-speak intentional, in order to underline the juvenile nature of the thinking in AFFI): all you do is reduce spending until it's no more than three-hundredths above income.

Outside AFFI, where Mean Mister Reality is in charge, the fairydust doesn't work.

In the real world, spending and income are related.

Income (from taxes) is directly related to the economy, which is often measured by GNP or GDP.

Not just a one-to-one relationship either. It multiplies. If you cut state spending by, say, €5bn, the economy (whether you measure by GDP or GNP) shrinks by between €7bn and €10bn.

We've seen copious proof of this phenomenon. I offer you for your perusal the economies of Spain, Portugal and Greece. The evidence is overwhelming: cutting your way to a lower deficit is simply impossible. (There might be an exception if the western world was booming, but it isn't and definitely won't at any point before 2016).
 

IbrahaimMohamad

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Before we even address the question we should ask: are any such measures even possible?

A deficit is composed of income and spending. When the former is lower than the latter, there is a deficit. When it's vice versa there is a surplus.

In AFFI (Austerian Fairydust Fantasy Island) getting to a deficit of 3% is easy-peasy-lemon-squeezy (children's TV presenter-speak intentional, in order to underline the juvenile nature of the thinking in AFFI): all you do is reduce spending until it's no more than three-hundredths above income.

Outside AFFI, where Mean Mister Reality is in charge, the fairydust doesn't work.

In the real world, spending and income are related.

Income (from taxes) is directly related to the economy, which is often measured by GNP or GDP.

Not just a one-to-one relationship either. It multiplies. If you cut state spending by, say, €5bn, the economy (whether you measure by GDP or GNP) shrinks by between €7bn and €10bn.

We've seen copious proof of this phenomenon. I offer you for your perusal the economies of Spain, Portugal and Greece. The evidence is overwhelming: cutting your way to a lower deficit is simply impossible. (There might be an exception if the western world was booming, but it isn't and definitely won't at any point before 2016).
Of course they are possible!
 

Dreaded_Estate

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Sep 5, 2007
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3,719
Before we even address the question we should ask: are any such measures even possible?

A deficit is composed of income and spending. When the former is lower than the latter, there is a deficit. When it's vice versa there is a surplus.

In AFFI (Austerian Fairydust Fantasy Island) getting to a deficit of 3% is easy-peasy-lemon-squeezy (children's TV presenter-speak intentional, in order to underline the juvenile nature of the thinking in AFFI): all you do is reduce spending until it's no more than three-hundredths above income.

Outside AFFI, where Mean Mister Reality is in charge, the fairydust doesn't work.

In the real world, spending and income are related.

Income (from taxes) is directly related to the economy, which is often measured by GNP or GDP.

Not just a one-to-one relationship either. It multiplies. If you cut state spending by, say, €5bn, the economy (whether you measure by GDP or GNP) shrinks by between €7bn and €10bn.

We've seen copious proof of this phenomenon. I offer you for your perusal the economies of Spain, Portugal and Greece. The evidence is overwhelming: cutting your way to a lower deficit is simply impossible. (There might be an exception if the western world was booming, but it isn't and definitely won't at any point before 2016).
Then why has the Irish deficit fallen from €20bn to €13bn through austerity?
 

feargach

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Then why has the Irish deficit fallen from €20bn to €13bn through austerity?
Because the cuts as actually implemented were not as big as the pro-austerity people wanted. Because the deficit in the first few years was loaded up with huge costs that couldn't be cancelled. The €7bn fall is mostly down to cancelled or dramatically reduced infrastructure projects. Because the cossetted better-off are still buying big-ticket cars and paying VRT on them.

Tens of thousands of the young jobless have emigrated, thus saving massive amounts of social welfare payments.

And also, the deficit figures don't include the big whale:

Over 130,000 households aren't paying their mortgages, although presumably the majority of these enjoy some kind of income, thus providing a hidden deficit not accounted for in the official statistics. Those 130,000 non-payers will somehow have to be paid for in some way. Probably a bailout to the banks in the future. Assume a very lowball figure like €600 a month going unpaid per household (does anyone really think the average is that low?) and that's a billion a year, every year.

Notwithstanding this, we're still in, or very close to recession.
 

IbrahaimMohamad

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The troika are leaving in ten months, isnt it great.
It would be just wonderful if there were enough mugs out there on the open market to buy Irish Bonds to finance Government current spending!
 

Taxi Driver

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Jan 8, 2011
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In the real world, spending and income are related.

Income (from taxes) is directly related to the economy, which is often measured by GNP or GDP.

Not just a one-to-one relationship either. It multiplies. If you cut state spending by, say, €5bn, the economy (whether you measure by GDP or GNP) shrinks by between €7bn and €10bn.
How much have we actually cut state spending by?
 

Taxi Driver

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Over 130,000 households aren't paying their mortgages, although presumably the majority of these enjoy some kind of income, thus providing a hidden deficit not accounted for in the official statistics. Those 130,000 non-payers will somehow have to be paid for in some way. Probably a bailout to the banks in the future. Assume a very lowball figure like €600 a month going unpaid per household (does anyone really think the average is that low?) and that's a billion a year, every year.
Where on earth are you plucking this sort of nonsense from???
 

Con Gallagher

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May 25, 2010
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Step back for a moment, by 2015, there will have been 8 "austerity" budgets but the expenditure will still exceed income by 3%!.

But yet, the McCarthy report will gather dust, we will still have some of the highest paid politicians (and librarians, city managers, and other higher paid public servants), professionals (eg NAMA solicitors) will still be sucking on the teat of the State, €70bn in corporate profits will attract an effective rate of tax of 6%, there may well be €10bn worth of tax exemptions still in existence and the banks will probably be recapitalised (as a result of ordinary workers defaulting in their mortgages by reason of having lower income and higher taxes).

It all sounds a bit mad to me (why would anyone sane government do this and why would any politician actually doing this highlight that this is their plan?)

What I think should/could have been done from 2008;
- slash the primary deficit to 3% there and then (and keep it there)
- where current expenditure had to be reduced, and equivalent sum should have been borrowed for capital projects (after a proper cost/benefit analysis) to ensure that there is no major reduction from the real economy (if the project was worthwhile the funds would be found)
- not socialized any private bank debt, until senior & junior bondholders and depositors in excess of €100k were burnt first.
 
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Taxi Driver

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Should the Government publish all budget measures needed to get to a 3% Deficit by 2016?
The deficit has to be reduced to under 3% by 2015, not 2016. We already know in broad strokes how they they plan on doing.



The Pro Note changes will knock 0.6% of GDP off the deficits in 2014 and 2015 so sticking to these figures would mean a deficit of aroundf 2.4% of GDP in 2015.
 

human 19

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Feb 3, 2011
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Should the Government publish all budget measures needed to get to a 3% Deficit by 2016?

It would help greatly if Government published their plans now rather than keeping people in suspense for the next number of years. Giving people the fullest information about future budget requirements would help people to budget and help restore more confidence.

Are there political disadvantages to releasing information now rather than keeping future budgets a surprise?
Well , FG did state in their programme for government that the budgets were to be discussed over a large part of the previous year. No sign of that happening yet. Possibly due to the fact that they would have to constantly answer awkward questions about it in the Dail and in the media for months beforehand. Now we are hearing that its impossible to discuss the budget before the November figures are in. Strange they had forgotten about that when drawing up their programme.

Its much easier for them to dodge questions by pushing budget discussions off until the actual budget is announced. Maybe they will bring in the change in the 5th year when they hope the required cuts will be smaller
 

Howya

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If the government provided a detailed plan now on the budgets for the next few years, the lobby groups would be out in force and every back bencher would be inundated by constituents. We would end up with a budget by committee - disaster.
 

IbrahaimMohamad

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If the government provided a detailed plan now on the budgets for the next few years, the lobby groups would be out in force and every back bencher would be inundated by constituents. We would end up with a budget by committee - disaster.
That is a political reality but other parties would be forced to admit that the money would have to be got form some where. The advantage is that a lot more people would know where they stand financially.
 

feargach

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Dec 11, 2006
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The OP is like asking "should the dieticians publish how many doughnut pizzas we should eat every day, washed down with lard milkshakes, in order to lose weight most effectively?"
 
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