Budget Deficit - When is it going to reduce?

mainasia said:

I don't know, I think moneylending will occur as long as there is a sufficient return. With a high enough interest rate Ireland would be an attractive market for NEW entrants. I can only surmise that most of the banks in Europe are already overleveraged otherwise Ireland should be a good market to lend into given the lack of lending but relatively high incomes here.

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Firefly said:

Hi Chris,

I hope this applies to the UK also, as their external debt is half that of the US!!!

Aren't New Zealand in a good position?!

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Not as much on a per capita basis for the UK and the US. For a country the size of Luxembourg it has a huge level of corporate financial debt. New Zealand and Australia have quite low public debt, but they do have quite a bit of private debt, but nothing comparable to Ireland.
Here are the per capita numbers:
IRL: $519,070
UK: $144,338
AUS: $52,596
NZ: $50,260
US: $47,568

Of Ireland's $2.4tr external debt, I believe about $800bn is financial services related, but you can't strip all that out, as the taxpayer is liable for a lot of that. Nevertheless, the numbers pretty much speak for themselves; Ireland has too much debt at public and private level and therefore the Irish people and state should not be given more debt.

Chris said:

Not as much on a per capita basis for the UK and the US. For a country the size of Luxembourg it has a huge level of corporate financial debt. New Zealand and Australia have quite low public debt, but they do have quite a bit of private debt, but nothing comparable to Ireland.
Here are the per capita numbers:
IRL: $519,070
UK: $144,338
AUS: $52,596
NZ: $50,260
US: $47,568

Of Ireland's $2.4tr external debt, I believe about $800bn is financial services related, but you can't strip all that out, as the taxpayer is liable for a lot of that. Nevertheless, the numbers pretty much speak for themselves; Ireland has too much debt at public and private level and therefore the Irish people and state should not be given more debt.

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I agree, but personal debt in the UK is 3 times higher than in the US and total external debt is half the US...this is pretty alarming to me I must say. I wonder what George Soros would think!

Firefly said:

I agree, but personal debt in the UK is 3 times higher than in the US and total external debt is half the US...this is pretty alarming to me I must say. I wonder what George Soros would think!

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It is definitely difficult to be a judge in an ugly contest. Also keep in mind that none of these figures include unfunded liabilities for public promises of future payments. For the US I have seen figures of $60tr to $140tr. Only way out will be very high inflation, which they are trying their damnedest to achieve, or outright default and cutting back on promises, which we have seen to be a political unacceptability.

http://www.finance.gov.ie/documents/exchequerstatements/2012/excheqstatMar.pdf

No signs whatsoever of the current budget deficit closing.

It's going to be a struggle!

It truly is shocking and a perfect example that all politicians are incompetent.
Here the deficit numbers for the past couple of years:
2008: €12.614bn
2009: €11.367bn
2010: €12.580bn
2011: €11.224bn
2012: €4.918bn

So far this year the deficit is up €741mn on the same period last year. I'm starting to think that Constantin Gurdiev's estimate of an eventual €250bn total debt is somewhat optimistic.

I did a bit more digging into the governments published exchequer reports.

Based on the government's own figures there has been no reduction in total government spending:

Now these figures do include all the money spent on banking sector recapitalisation past and present. As there are two distinct problems in Irish public finances (a) too much money spent on bailouts and (b) too much money spent on government we should certainly separate the two.

The next table uses data from the same government exchequer data, but this time only taking departmental current and capital spending into account.


At first glance this table seems to show that government spending is down a "whopping" €3.6bn since 2008, but in my opinion the figures paint an entirely different picture. In 2007 all the signs were there that a crisis, big or small, was looming. Despite this the government of the day, with a massive give-away-budget, increased spending for 2009 by 10.55%, which resulted in a massive deficit for that year.

Therefore, a more adequate comparison is between the last deficit free year (2007) and 2011. So, how much has spending been cut back since then? It hasn't!!! Spending is up by 2.47%.

My conclusion:
Spending has not been cut in any meaningful way, not by any stretch of the imagination, while taxes have been cripplingly increased. It is about time that an end is put to this madness.

Is it not the case that the small increase in spending is down to the huge increase in unemployment, and therefore spending in other areas has actually been cut?

callybags said:

Is it not the case that the small increase in spending is down to the huge increase in unemployment, and therefore spending in other areas has actually been cut?

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That is entirely possible, but you cannot go around saying that spending has been cut when at the bottom line no such thing has happened. A slower increase and an actual decrease are two completely different things.

It is about time that an end is put to this madness.

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But should the question not be to firstly identify the capacity to reduce spending without driving people into further social deprevation and damaging our core public services?
Politicians have shied away from addressing the single biggest contributor to spending;- Public service remuneration. I acknowledge the difficulties in doing this.
Health, Education & SW are the top expenditure contributors. There is little scope for savings in the first 2 areas without pay cuts and it must be difficult to tackle SW in any meaningful way without penalising those on marginal incomes.
Obviously there is potentially still a significant level of waste in the expenditure, but in the context of the major cuts needed, this is likley to somewhat less significant.
So, what should be done? Perhaps someone has a rational proposition!

Chris said:

My conclusion:
Spending has not been cut in any meaningful way, not by any stretch of the imagination, while taxes have been cripplingly increased. It is about time that an end is put to this madness.

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Taxes have been dramatically increased and have yielded significant additional revenues from an ever narrowing base of those on mid to high incomes, that is an absolute fact.

As you say, there has been no such proportionate fall in spending. Social welfare and old age pensions have been untouched or only had minor tweaks. Public service salaries have given up some of the gains enjoyed over the last 10 years, but are a long way ahead of where they were - even taking the cost of living into account.

In many cases the cost of living has come down over the last decade, but somehow public servants and people on social welfare are not being asked to see if they could return to standards of living from a decade ago.

The deflationary argument is bogus, it applies equally to taxes and with taxes you also get the disincentives.

We can also not run €10bn current deficits forever.

So the only obvious answer is to cut wages and social welfare and try deal with the fallout of mortgage defaults, etc in a targetted way.

44brendan said:

But should the question not be to firstly identify the capacity to reduce spending without driving people into further social deprevation and damaging our core public services?
Politicians have shied away from addressing the single biggest contributor to spending;- Public service remuneration. I acknowledge the difficulties in doing this.
Health, Education & SW are the top expenditure contributors. There is little scope for savings in the first 2 areas without pay cuts and it must be difficult to tackle SW in any meaningful way without penalising those on marginal incomes.
Obviously there is potentially still a significant level of waste in the expenditure, but in the context of the major cuts needed, this is likley to somewhat less significant.
So, what should be done? Perhaps someone has a rational proposition!

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What should be done and what will be done are two entirely different things.

The public sector has swelled in the past decade and now represents a large, organised and unionised group...just look how the OAPs got themselves what they wanted when the OAP was going to be cut as an example. I think we will just see more taxes ( as a roundabout way to reduce public sector wages ) that will further harm the real economy along with cuts to services. More "charges" and "levies" and when these have finally been exhausted, the tax credits will be reduced and finally the marginal rates increased. Good luck trying to keep people working here with these measures.
Once the banking side of our problem has been fixed, the focus will then have to turn to the budget deficit. I think that any big changes here will have to come from the Troika as no political party will want to be the party in government who slash public sector number/salaries...this way they can say their hands were tied. In the meatime, successive governments will be praying for employment in the private sector to pick up....this will solve a nice problem for them....how to cut spending without aggrivating anyone...more people working means more in tax revenue along with less dole...a double whammy. A little bit of inflation with a freeze on public sector pay too would be nice for the coffers.

What should be done in my opinion is to follow what Chris posted here several times....whole areas controlled by the government should be shut down and/or privatised. I would start by looking at those new organisations created during the bubble as IMO a lot are "nice to haves" that can't be afforded. I would also look at more establised functions of the state....e.g ( and I don't know the answer to this)...do we need a navy? Why not just contract the services from the UK or another country?
The dole should be cut via a sliding scale where those on longterm unemployment are paid less. Along with this I would look to reduce taxes so that those on the dole would be incentivised to seek employment/start their own business/re-educate themselves.

I'll probably get lambasted for these opinions but what else can be done (apart from continiung to lump more debt on our children)???

I agree that what needs to be done is politically not palatable, but that doesn't mean it cannot be achieved. I believe that a slash, cut and amputate approach to public spending would have serious short term effects that would be overcome before the next election. History has proven that economies can recover very quickly, even from serious downturns, when government gets out of the way. However, I do not believe that any such voluntary and proactive approach will happen here.