# Bailing out the banks vs Current account deficit



## Firefly (14 Apr 2010)

This drive me mad.

I can understand the frustration by union bosses that we as a country are having to inject so much capital into our banks. But I believe the argument is populist. Lots of other countries have had to do the same. Also, this will ultimately be a one-off hit.

Ignoring the banking bail-out for a moment, the government is borrowing 400M a week (or 20BN a year) to fund the day-to-day current account deficit. This is _indefinite _borrowing. So, in the time the banking crisis first occurred (Sept 2008), we have borrowed 28BN (400m x 72 weeks) just to cover the current account deficit. Surely this is the elephant in the room.  
According to http://www.finance.gov.ie/documents/publications/reports/2009/payanaljul09.pdf

pay as a % of Gross current spending is 35%. Therefore of the 400m we are borrowing every week, we are in effect borrowing 140m a week to pay for public sector pay & pensions. Why can't the union bosses face up to that?


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## Protocol (14 Apr 2010)

Just a note on terms.

The Govt's budget is in deficit, yes.

Part of that budget is the *Current budget*.


But the *Current Account* of the national Balance of Payments is actually moving from deficit towards surplus.

[broken link removed]

As a nation as a a whole, we are borrowing less.

But, yes, the Govt is borrowing a lot.


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## brigade (14 Apr 2010)

Firefly said:


> pay as a % of Gross current spending is 35%. Therefore of the 400m we are borrowing every week, we are in effect borrowing 140m a week to pay for public sector pay & pensions. Why can't the union bosses face up to that?


 
Ok, so whats the answer. Cutting PS pay by 35%?


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## Purple (14 Apr 2010)

brigade said:


> Ok, so whats the answer. Cutting PS pay by 35%?



No, but accept that cuts have to be made and stop telling lies about the situation we are in. For example one of the bearded brethren was on The Front Line on RTE spouting about the government spending €20Billion on the bank bail out while beggering public sector workers to save €1Billion. That's just not true. The figures are incorrect and they know it but they continue to trot out the same lines. They are lying.


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## brigade (14 Apr 2010)

I accept that cuts have to be made, but at what point will it be accepted that PS have taken enough of a cut?


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## DerKaiser (14 Apr 2010)

brigade said:


> I accept that cuts have to be made, but at what point will it be accepted that PS have taken enough of a cut?



Looks like public spending needs to be shaved by a further 8% this year or next, one way or another.  I'd be expecting another tax hike as well.

None of us are going to have a say in how we're taxed.  If you're in a public sector union at least you have the choice to decide whether you want to limit potential pay cuts by embracing reform


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## dewdrop (15 Apr 2010)

Hi Protocol...i think the figures you quote relate to our trade position. In fact the Revenue/Expenditure figures (which gives rise for the need to borrow)  for the first three months of this year showed a deficit of 3.7 billion which was one billion more that similar period in 2009


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## Shawady (15 Apr 2010)

brigade said:


> I accept that cuts have to be made, but at what point will it be accepted that PS have taken enough of a cut?


 
At the beginning of 2009 the government had a plan to close the deficit by 16 billion over 5 years (I think the EU have given them an extra year now).
If I was a union representing the PS, I would have asked the government how much of that is to come from the PS pay bill. Even if only 25% of the adjustments were to come from tax increases that leaves 12 billion in spending cuts. As PS bill is 1/3 of spending , it seems fair that 4 billion of these cuts must come from PS bill.

I actually think this is very achievable over 5 years but what worries me now is that have already introduced 6 billion of these adjustments it looks like the deficit is not going to be narrowed by the end of 2010.


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## Firefly (15 Apr 2010)

brigade said:


> Ok, so whats the answer. Cutting PS pay by 35%?


 
No, it would be too much. But IMO further cuts need to be made. How much...don't know exactly, but *proper *economic analysis needs to be done. We just need to get our borrowing down big time. 

We're 30 mins behind Greece. And even if that (IMF) never happens we are still putting a mountain of debt on our future generations. They're gonna have to pay for that in addition to generous PS pensions as well as an every increasing health bill due to the aging population....sounds like a big ask to me and an unfair one.

In the good days we had all sorts of plans. Transport 21 etc etc. This is the time more than ever where we need plans. We need direction and goals from the government such as - In 5 years time we're going to half our national debt, NAMA's new mandate is to actually make money for the taxpayer etc etc.


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## Purple (15 Apr 2010)

brigade said:


> I accept that cuts have to be made, but at what point will it be accepted that PS have taken enough of a cut?


 When the books balance then there will have been enough cuts. We don't know when the books will balance.


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## Firefly (15 Apr 2010)

Purple said:


> When the books balance then there will have been enough cuts.


 
In an ideal world yes, borrowing should only be used for capital projects that will yield a return to the taxpayer (not necessarily monetary). Current spending should be funded from current income. Otherwise it's like doing your shopping and paying your bills on the credit card and only making the minimum payments each month and letting the balance grow and grow.


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## brigade (15 Apr 2010)

Purple said:


> When the books balance then there will have been enough cuts. We don't know when the books will balance.


 

Which brings me back to the first post, which says pay is 35% of gross current spending. The more pay thats cut the less PAYE, PRSI etc thats taken in and the more eligible people are for FIS and medical cards.  So will we ever get to a point where the books balance unless more people are taken of the dole queues and start contributing to the tax take?


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## Purple (16 Apr 2010)

brigade said:


> Which brings me back to the first post, which says pay is 35% of gross current spending. The more pay thats cut the less PAYE, PRSI etc thats taken in and the more eligible people are for FIS and medical cards.  So will we ever get to a point where the books balance unless more people are taken of the dole queues and start contributing to the tax take?



 I agree but in the short term there will have to be cuts in welfare and increases in the threshold for eligibility for FIS and medical cards. On top of that there will have to be increases in taxation and huge reductions in the tax bands to bring more people into the tax net.


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## Complainer (16 Apr 2010)

Firefly said:


> Ignoring the banking bail-out for a moment



That's a bit like ignoring the cloud of volcanic ash - it's just too big to be ignored.



Firefly said:


> we are in effect borrowing 140m a week to pay for public sector pay & pensions


No - we're not. Whatever we are borrowing is being used to pay *for public services* - it's kind-of importannt to remember that these services are important.


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## Firefly (16 Apr 2010)

Complainer said:


> That's a bit like ignoring the cloud of volcanic ash - it's just too big to be ignored.


 
They're seperate events though. If we didn't have to inject capital into the banks we'd still have to borrow to meet current expenditure




Complainer said:


> No - we're not. Whatever we are borrowing is being used to pay *for public services* - it's kind-of importannt to remember that these services are important.


 
Nobody is saying public services are not important. What I'm saying is that 
35% of gross current spending (which we are borrowing 400m a week to pay for) is going on pay.


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## Complainer (16 Apr 2010)

Firefly said:


> Nobody is saying public services are not important. What I'm saying is that
> 35% of gross current spending (which we are borrowing 400m a week to pay for) is going on pay.


Yep, that tends to happen when you need lots of nurses/teachers/parkies/H&S inspectors etc.


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## Firefly (16 Apr 2010)

Complainer said:


> Yep, that tends to happen when you need lots of nurses/teachers/parkies/H&S inspectors etc.


 
So which is it - are our wages too high or do we have too many on the payroll (assuming we don't want to continue to borrow 140m a week)?


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## Complainer (16 Apr 2010)

Firefly said:


> So which is it - are our wages too high or do we have too many on the payroll (assuming we don't want to continue to borrow 140m a week)?


Ah the old 'Have you stopped beating your wife yet' style of questioning returns.


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## Firefly (16 Apr 2010)

Complainer said:


> Ah the old 'Have you stopped beating your wife yet' style of questioning returns.


 
More deflection..

I take it then (post 16) that you are happy for us to borrow 140m a week for pay?


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## Complainer (16 Apr 2010)

Firefly said:


> I take it then (post 16) that you are happy for us to borrow 140m a week for pay?



Ah the old 'Have you stopped beating your wife yet' style of questioning returns.


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## Purple (16 Apr 2010)

Complainer said:


> Ah the old 'Have you stopped beating your wife yet' style of questioning returns.



To quote Roland Reagan, "There you go again".


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## Husker (16 Apr 2010)

Firefly said:


> They're seperate events though. If we didn't have to inject capital into the banks we'd still have to borrow to meet current expenditure


 
Are they really?  Won't the additional interest payments on the national debt mean that current expenditure needs to be shaved further?


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## brigade (16 Apr 2010)

Firefly said:


> I take it then (post 16) that you are happy for us to borrow 140m a week for pay?


 
So as I asked in post 3, is the answer to cut PS pay by 35%?


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## Complainer (16 Apr 2010)

Firefly said:


> I take it then (post 16) that you are happy for us to borrow 140m a week for pay?



It is a false premise. How come you decided that the money being borrowed is the money to pay for public services? How come it isn't the money going to the banks that is being borrowed? Or the money to pay social welfare? Or the money lost to landlords and developers of private medical clinics through tax reliefs? Or the money being paid out to employers to pay for 'work experience' schemes?


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## Purple (17 Apr 2010)

Complainer said:


> Or the money to pay social welfare? Or the money lost to landlords and developers of private medical clinics through tax reliefs?


 That's not where the big money goes; how about the massive payments to GP's for medical card lists? On top of the average od €165 per year per head they also get 100% payments for some staff members (depending on how many punters they have on their list) and payments for equipment etc. All of which can and does get used for their private list.


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## Firefly (19 Apr 2010)

Husker said:


> Are they really? Won't the additional interest payments on the national debt mean that current expenditure needs to be shaved further?


 
I take your point but the interest payments on the additional national debt will be small change compared to the annual 20BN shortfall we have at the moment


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## Firefly (19 Apr 2010)

Complainer said:


> It is a false premise. How come you decided that the money being borrowed is the money to pay for public services? How come it isn't the money going to the banks that is being borrowed? Or the money to pay social welfare? Or the money lost to landlords and developers of private medical clinics through tax reliefs? Or the money being paid out to employers to pay for 'work experience' schemes?


 

From the link I provided (Page 18):

"Pay as a % of Gross current spending 35%"

Given we are borrowing 400m a week it seems reasonable to me that 35% of this is to meet pay requirements.


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## Complainer (19 Apr 2010)

Firefly said:


> "Pay as a % of Gross current spending 35%"
> 
> Given we are borrowing 400m a week it seems reasonable to me that 35% of this is to meet pay requirements.


Indeed, but the 35% figure is only relevant within the context of all the other spending. You are choosing to ignore all other spending, and focus on spending on public services as the problem area. You also choose to focus solely on pay as the problem, without looking at all at the essential public services that are being provided for this pay. You also fail to consider the deflationary impact on the economy of cuts in pay. Like I said, it's a false premise.


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## Firefly (19 Apr 2010)

Complainer said:


> Indeed, but the 35% figure is only relevant within the context of all the other spending. You are choosing to ignore all other spending, and focus on spending on public services as the problem area. You also choose to focus solely on pay as the problem, without looking at all at the essential public services that are being provided for this pay. You also fail to consider the deflationary impact on the economy of cuts in pay. Like I said, it's a false premise.


 
I think government spending across the board should be reduced. However as 1/3 of all spending is on pay, clearly reducing this would reduce a lot of borrowing.

I agree the PS provides essential services. However I don't think we should be borrowing 140m a week to pay for these. Why can't the same services be provided for less pay? 

Nobody in either the private or public sectors seem to be spending money so not sure of any additional deflationary impacts on the economy. If you could provide a link to this I'd be interested.


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## Complainer (19 Apr 2010)

Yorky said:


> Taking the HSE as anexample, 75% of the health budget goes on pay ( and grossly inflated pay at that) while the remaining 25% goes on actually providing services for patients.
> 
> There is simply little return for the taxpayer nor commnity and society from public sector pay.


This kind of foolishness that highlights the futility of trying to have any sensible discussion on AAM. Perhaps you haven't noticed, but the purpose of spending money on pay is to have public servants in place to provide services. In the case of the 75% of the HSE budget that goes on pay, the doctors/nurses/paramedics provide services every day for this money. That is its purpose.



Firefly said:


> I think government spending across the board should be reduced. However as 1/3 of all spending is on pay, clearly reducing this would reduce a lot of borrowing.
> 
> I agree the PS provides essential services. However I don't think we should be borrowing 140m a week to pay for these. Why can't the same services be provided for less pay?


If you pay peanuts, you get monkeys. While there aren't too many other employment options available at the moment, this will improve over the next 2/4/6 years. If you cut pay, you will strip the public sector of quality staff, and you will directly impact the quality of service.



Firefly said:


> Nobody in either the private or public sectors seem to be spending money so not sure of any additional deflationary impacts on the economy. If you could provide a link to this I'd be interested.




http://notesonthefront.typepad.com/...5-standards-the-argument-that-irish-publ.html


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## Complainer (19 Apr 2010)

Unfortunately for you, the facts don't support your two anecdotal stories. The facts show that Irish public sector labour costs were 10th out of the EU-15, BEFORE the pension levy and last round of cuts were made. See http://notesonthefront.typepad.com/...th-revisiting-a-couple-of-issues-in-rela.html

And of course, when you consider the huge cost of buying or renting accomodation in Ireland (even after a couple of years of sliding property prices), the stories about inflated wages just look a bit silly.


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## Firefly (19 Apr 2010)

Complainer said:


> If you pay peanuts, you get monkeys.


 
This is a poor cliche. The pay rates here are way higher than most other EU countries - are you saying staff in these countries are monkeys?

Also, there's a hiring freeze. There is no scope for "monkeys" to be hired



			
				Complainer;1031125
If you cut pay said:
			
		

> And where are they going to go....the private sector?


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## shnaek (19 Apr 2010)

Pat Neary got paid a lot more than peanuts, but ended up being somewhat of a monkey. In fact, the civil servants who we trusted with running the country have hardly covered themselves in glory over the past ten years - and they were hardly underpaid.


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## Complainer (19 Apr 2010)

Firefly said:


> This is a poor cliche. The pay rates here are way higher than most other EU countries - are you saying staff in these countries are monkeys?



Perhaps you'd like to have a look at numbers of Ireland's public service labour costs at the link I posted above and revise your post?



Firefly said:


> Also, there's a hiring freeze. There is no scope for "monkeys" to be hired
> And where are they going to go....the private sector?



Perhaps you'd like to reread my post above where the context of my concerns were already explained, i.e. "While there aren't too many other employment options available at the moment, this will improve over the next 2/4/6 years. If you cut pay, you will strip the public sector of quality staff, and you will directly impact the quality of service."




shnaek said:


> Pat Neary got paid a lot more than peanuts, but ended up being somewhat of a monkey. In fact, the civil servants who we trusted with running the country have hardly covered themselves in glory over the past ten years - and they were hardly underpaid.



Indeed, Neary's performance was disgraceful, as was his payoff/golden handshake. However, he was operating within the context of a 'light touch' regulatory environment put in place by his political masters. This was at the behest of Fitzpatrick et al, who didn't want their 'wealth creation' activities hindered by mere bureaucrats.

And indeed, the same can be said for much of the public service environment. The public servants don't set the policy, and are dependant on the politicians for this. The Central Bank did sound some warnings about property prices in the past, but Bertie suggested that they go and kill themselves instead.


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## Purple (19 Apr 2010)

Complainer said:


> Perhaps you'd like to reread my post above where the context of my concerns were already explained, i.e. "While there aren't too many other employment options available at the moment, this will improve over the next 2/4/6 years. If you cut pay, you will strip the public sector of quality staff, and you will directly impact the quality of service."


 If that happens then pay rates will have to be increased in order to get/retain the right staff.



Complainer said:


> Indeed, Neary's performance was disgraceful, as was his payoff/golden handshake. However, he was operating within the context of a 'light touch' regulatory environment put in place by his political masters. This was at the behest of Fitzpatrick et al, who didn't want their 'wealth creation' activities hindered by mere bureaucrats.


 That's a bit glib, if the regulations as they existed were enforced correctly there wouldn't have been anything like the problems we have now. 



Complainer said:


> And indeed, the same can be said for much of the public service environment. The public servants don't set the policy, and are dependant on the politicians for this. The Central Bank did sound some warnings about property prices in the past, but Bertie suggested that they go and kill themselves instead.


 I agree that policy was seriously deficient but the problem didn't stop there.


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## Complainer (19 Apr 2010)

Yorky said:


> What's 'a bit silly' is trying to defend unaffordable public sector pay rates. The stance of the unions and some PS employees are devoid of reality and will literally bankrupt the country if the government continues to capitulate.
> 
> In these dire circumstances the unions need to be disbanded, pay reductions of 35%+ ( 50-70% for the likes of doctors and the judiciary) applied, present defined benefit pension scheme to be replaced with defined contribution scheme and reviewable contracts based upon performance introduced.
> 
> ...



Like I said above, "This kind of foolishness that highlights the futility of trying to have any sensible discussion on AAM.". You ignore hard evidence showing that Irish pay rates were (before the pension levy and recent cuts) 10th out of the EU-15 countries. I can only guess at what your confused 'subsistence level' comment is supposed to mean, but public servants aren't on a vocation. They are entitled to fair payment for their services, and the public are entitled to excellent quality of services.

 Ireland's economic woes have nothing to do with public pay rates. Our economic woes are down to the 10's of billions of euros leaving the public purse to shore up our banking system. Don't expect public servants to take any of this poor-mouthing seriously, when Richie Boucher gets a €1.5million pension contribution for a post with a salary cap of €500k, because of his 'contractual obligations'. What about the 'contractual obligations' to 350,000 public servants?


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## Firefly (19 Apr 2010)

Complainer said:


> Perhaps you'd like to have a look at numbers of Ireland's public service labour costs at the link I posted above and revise your post?
> 
> 
> Perhaps you'd like to reread my post above where the context of my concerns were already explained, i.e. "While there aren't too many other employment options available at the moment, this will improve over the next 2/4/6 years. If you cut pay, you will strip the public sector of quality staff, and you will directly impact the quality of service."


 
That link is blocked where I work, so if I have time tonight I'll take a look.

We don't know that things will improve in 2/4/6 years as you say. If we keep our heads in the sand and hope for a recovery of sorts, we will be adding 20BN per year to our national debt (35% of which will fund pay). 

As there are no jobs in the private sector, reducing the wages in PS will not have any impact on the numbers in the PS.


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## Sunny (19 Apr 2010)

Complainer said:


> Ireland's economic woes have nothing to do with public pay rates. Our economic woes are down to the 10's of billions of euros leaving the public purse to shore up our banking system. Don't expect public servants to take any of this poor-mouthing seriously, when Richie Boucher gets a €1.5million pension contribution for a post with a salary cap of €500k, because of his 'contractual obligations'. What about the 'contractual obligations' to 350,000 public servants?


 
No its not. Why do you keep repeating that? What 10's of billions have left the public purse so far? The deficit that the Government is trying to solve has nothing to do with the banks. It is to do with the fact that paying for our public services including public sector pay and numbers were based on tax revenues that were unsustainable. Even if we were to raise tax by huges amounts so we were the most taxed Country in Europe, we wouldn't be able to close the gap. Therefore the expenditure side has to be cut. We have to deliver public services more efficiently and cheaper. Whether that is done through pay cuts or reform is up to the public sector workers. I don't want my girlfriend who is a nurse taking a paycut. I do however see that like Aer Lingus cabin crew, she has to face economic reality.

Richie Boucher and other top bankers who won't accept the new reality are a disgrace. It doesn't change the reality of the public finances though. 

The economic reality is that we either do this ourselves or we let other people do it for us. That's not scaremongering. Greece will be getting a bailout in the next 1-2 weeks. Look at the conditions that are attached to the deal. The same conditions will be applied here if we go looking. I don't like being a slave to the international bond markets but we are because of gross incompetence and greed by this Country's leaders.


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## Firefly (19 Apr 2010)

Complainer said:


> Ireland's economic woes have nothing to do with public pay rates. Our economic woes are down to the 10's of billions of euros leaving the public purse to shore up our banking system.


 
This is exactly what I was referring to in my opening post.


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## Complainer (19 Apr 2010)

Firefly said:


> That link is blocked where I work, so if I have time tonight I'll take a look.
> 
> We don't know that things will improve in 2/4/6 years as you say. If we keep our heads in the sand and hope for a recovery of sorts, we will be adding 20BN per year to our national debt (35% of which will fund pay).
> 
> As there are no jobs in the private sector, reducing the wages in PS will not have any impact on the numbers in the PS.



Any chance that you could avoid using 'PS' in a debate about two PS's? It is just a bit confusing.

This is nothing to do with a 'head in the sand' approach. This is about focusing Government spending on providing public services, as opposed to focusing spending on Richie Boucher's pension and other people in the financial sector. This is about avoid deflationary actions that could bury us in deep recession for a generation (see MIchael Taft's analysis again). 

And your comment about 'no jobs in the private sector' is nonsense. There are many jobs in the private sector. There are many people in the private sector who have seen no cuts. There are many private sector organisations continuing to pay at same or increased levels. There are some private sector organisations recruiting staff.


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## Firefly (19 Apr 2010)

I don't know how many times...but here it is again...

We're borrowing 20GB a year to plug the deficit gap. 
35% of current expenditure is going on pay...which means 7BN of annual borrowing is going on pay. We can't afford this!

I totally agree the banking situation is a disaster, but as stated this is a one-off hit....we'd have the 20BN deficit issue anyway.


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## Purple (19 Apr 2010)

Complainer said:


> There are many private sector organisations continuing to pay at same or increased levels. There are some private sector organisations recruiting staff.


If an export focused private sector company is continuing to make a profit by operating in an international market where the ups or downs  of the Irish economy have no bearing one way or another on their business do you think they should cut pay levels? In my opinion that would be disgraceful as doing so would simply be taking advantage of the recession in order to increase profits and therefore pay levels for the owners and/or directors.


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## doubledeb (19 Apr 2010)

Firefly said:


> I don't know how many times...but here it is again...
> 
> We're borrowing 20GB a year to plug the deficit gap.
> 35% of current expenditure is going on pay...which means 7BN of annual borrowing is going on pay. We can't afford this!
> ...


 
Ha ha that made me laugh
Where are we borrowing 20*GB* from?.... the hard drive?


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## Firefly (19 Apr 2010)

doubledeb said:


> Ha ha that made me laugh
> Where are we borrowing 20*GB* from?.... the hard drive?




More like 20*TB *


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## Firefly (19 Apr 2010)

Complainer said:


> http://notesonthefront.typepad.com/...5-standards-the-argument-that-irish-publ.html




I take the point but I don't agree with it. The benefit IMO to cutting wages would be larger than the cost of lost tax revenue...otherwise why doesn't the government simply hire the 400k unemployed people and hey presto we'd be sorted.


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