Actually it does because any savings go to reducing the deficit and paying back debt. It doesn't to other areas of the economy and it doesn't go back to taxpayers in the form of lower taxes. It is a deflationary action. That doesn't mean it is a bad thing but it will have economic consequences on domestic demand just like if you decided to cut everyone's wages by 10%.
"No jobs mantra suits the work-shy and welfare abuser"
- Thread starter Brendan Burgess
- Start date
Actually it does because any savings go to reducing the deficit and paying back debt. It doesn't to other areas of the economy and it doesn't go back to taxpayers in the form of lower taxes. It is a deflationary action. That doesn't mean it is a bad thing but it will have economic consequences on domestic demand just like if you decided to cut everyone's wages by 10%.
“If you cannot sell your skills at that level you will go out of business.” Yes, that’s exactly what I’m saying.
No, “the lowest price person's skills are worth what that person is willing to perform them at” is not correct. That’s the lowest price at which a seller will enter the market. The value is set by the buyer. If there is a shortage of supply then prices will increase ‘till it is viable for a seller to operate in the market.
If people are willing to pay for them then they are have a value’ i.e. if there is a demand then there is a value. No demand, no value.
If the state can gain a value by engaging a professional in the area in which they are qualified then they should pay them the market rate for those services. If they have no need for those services then they should not employ them. The market sets the rate, not the cost base of the supplier. The suppliers cost base sets the price point at which suppliers will enter the market. This in turn effects supply which in turn effects price but it’s not a direct link.
Again, if there is a demand for the services then the seller can charge what the market will stand. If there’s nobody willing to purchase their services then their services have no market value,
I agree. This influences the price point at which sellers will enter the market.
The reward you can expect for your skills is set by the market.
A friend of mine spent 4 years in college studying fabrics and embroidery. She graduated the same month the first CNC embroidery machines came on the market. This reduced the market value of her skills to virtually zero. The guys who were highly skilled coopers working for Guinness found that the value of their skills reduced to almost nothing when metal barrels and casks were introduced.
Who said anything about paying back the debt at a more accelerated rate?
What you are saying is that paying back our debt at a more accelerated rate is deflationary NOT that cutting public expenditure is delfationary.
Has nothing to do with a paying back at a faster pace. Cutting public expenditure is deflationary unless the money is given back through tax cuts or spent in other parts of the economy. That's not what will happen. It will simply reduce the amount we need to borrow.
Borrowing is also deflationary as it costs money - you have to pay interest annually and in most cases refund the capital within a specific timeframe. If you borrow you have to cut public expenditure as some of your tax take will be used up in interest repayments. So borrowing cannot be held up as an alternative to cutting public expenditure.
Yes, borrowing as we all know only kicks the can down the road. Repaying this debt will at best dampen any future recovery as the principle and interest will have to be repaid. This will be repaid with taxation which is extracted from the economy (deflationary). It's a case of paying for it now or in the future.
I am not holding it up as an alternative. I am simply saying that cutting a budget deficit through spending cuts is by it's nature, deflationary. Otherwise the Government would just decide to run a balanced budget next year but they know the economy couldn't survive that.
The deficit has to be cut. There is no escaping that. Simply saying that there are economic consequences to doing this. So when people say that cutting social welfare won't lead to money being taken out of the economy, they are wrong.
Who cares?
The gap between our annual income and annual expenditure is €20 billion. This needs to be reduced to zero. Whether it's deflationary or not doesn't matter an iota.
Our expenditure is approximately €50 billion per annum. €20 billion goes on social welfare, €20 billion goes on salaries and €10 billion goes on the rest.
Make 50,000 public servants redundant for starters and pay them statutory redundancy. Assume their average annual service to be 10 years (which would be high) and the average cost of the employees to be €50,000 per annum. For a once off cost of approximately €630 million (i.e. €600 x 2 x 10 x 50,000) we'd make a recurring annual saving of approximately €2.5 billion (i.e. €50,000 x 50,000). The tax loss and dole cost for those who didn't find alternative employment would obviously have to be factored in.
Next cut all public sector salaries by 20%. That should yield an annual saving of €3.5 billion (i.e. €17.5 billion x 20%) and the tax loss would obviously have to be factored in.
Next cut all social welfare payments by 20%. There's an immediate saving of €4 billion per annum.
Bang...half of the deficit wiped out with a few strokes of a pen.
Next hit every property commercial or otherwise for €1,000 property tax. That raises €4 billion per annum. Only €6 billion to go!
Next raise inheritance tax rates from 25% to 50% and drop the parent to child thresholds to €200,000. This should raise approximately €1 billion per annum and can't be put off (unlike capital gains tax).
€5 billion to go...any ideas?
Wow. Problems solved. Amazing how these simple steps escaped the attention of the Department of Finance and all those other economists. As you say it is only the stroke of a pen. You should write to the IMF/EU and the ECB with your guide to instant economic recovery. They will feel really stupid for not suggesting it first.
Out of interest, what do see happening GDP after these simple steps? Presume you have looked at it.
Do you propose running a €20 billion deficit forever? 80% of our expenditure goes on social welfare and public sector salaries.
What's being done about the €20 billion annual deficit now? We're bringing in a property tax which will yield €75 million per annum. Fantastic. Things should be fine in 2125.
The current deficit MUST be eliminated.
Increased tax receipts due to a growing economy will also do the trick.
It's a balancing act between the two.
Yep...absolutely.
My issue is with the navel gazing over a property tax that will raise €75 million per annum when we've an annual hole of 267 times that.
I agree. There's still no sign of any structural reform of how the country is run.
I think it is becoming futile to point this out to ONQ. This has been highlighted at least 4 times now, but somehow he refuses to acknowledge it. I don't have any other explanation.
A quote by Garet Garrett comes to mind in that we have entered "an area of controversy in which opinion rejects evidence and evidence disembowels opinion."
But the deflationary effect is offset by the lack of deflationary effect of having to tax to repay increased debt. Basically it reduces the interest bill, which reduces the amount government has to ultimately take out of the economy. This means that it more than balances out, as less money has to be taken out of the economy in the future.
Beyond that I also think it is fallacious to argue that deflation is a bad thing in the first place (not saying that this is your argument). Deflation means lower prices, which is a good thing to the consumer and producer, and most importantly boosts competitiveness. For 150 years of the industrial revolution the US had price deflation and monetary stability (bar a couple of wars), and this boosted their economy into what it was.
I think this should technically put an end to the argument over spending cuts, but it doesn't seem to resonate with politicians at all who believe we can grow out of this mess. Too many people still believe that Ireland has an income problem and not a spending problem. Bringing the budget in line with what is actually taken in would bring us back to 2004 level of spending. That is not as terrible a prospect as some politicians and commentators would have us believe.
Have you done the maths on this? Take €20 billion out of the economy today so we don't have to borrow any money to run the Country and see what happens. For the deficit to be wiped out, GDP would have to remain the same. Does anyone really believe that the economy wouldn't shrink with €20 billion taken out in go? The economy will shrink, therefore we have a deficit again. Suddenly you are in a spiral.
The deficit has to be cut but it has to be cut realistically in a way that doesn't send the economy over a cliff. There is room to be more aggressive than what we are the moment but we can't cut multiples of what we are cutting while still expecting the economy to grow or remain stable.
The government part of GDP will shrink, but the non-government part of GDP will grow. Spending cuts do not result in a downward spiral. Spending cuts result in more money staying in the private productive economy, making the private economy more profitable and economically attractive. The exact opposite would happen, in that the economy would start booming. The US has had such experiences numerous times, after the war of independence, civil war, 1921 depression, after WWII. On each occasion government spending was drastically cut (while pundits warned that that would be a disaster) and the economy started booming. By your line of argument this should have been impossible and the opposite should have happened.
Another good piece on our welfare system here in Ireland:
http://www.independent.ie/opinion/c...stem-requires-a-dramatic-rethink-2850974.html
"The dramatic German reforms saw the numbers entitled to unemployment benefit cut by half and their link to earnings abolished. The Dutch will not pay any benefit to anyone under 27.
The Danes don't care whether you're a single parent or not."
Is it any wonder that they aren't happy about having to bail the likes of us out?
"the lowest social welfare payments in Ireland were the highest of their kind in the EU and twice those in the UK and Germany. And that is only the cash payments, before things like housing support."
And yet, those of us who are still working are going to be hit with more tax rises, making it even less worth while to work. Simply bizarre.
http://www.independent.ie/opinion/c...stem-requires-a-dramatic-rethink-2850974.html
"The dramatic German reforms saw the numbers entitled to unemployment benefit cut by half and their link to earnings abolished. The Dutch will not pay any benefit to anyone under 27.
The Danes don't care whether you're a single parent or not."
Is it any wonder that they aren't happy about having to bail the likes of us out?
"the lowest social welfare payments in Ireland were the highest of their kind in the EU and twice those in the UK and Germany. And that is only the cash payments, before things like housing support."
And yet, those of us who are still working are going to be hit with more tax rises, making it even less worth while to work. Simply bizarre.
That's not entirely true. If those same people post an article from the Indo themselves, then it's fine.
You can always find something to cherry pick from the Social Welfare Stats.
Netherlands Unemployment Benefit
From -
http://www.expatica.com/nl/essentia...ch-social-security-system-explained-1704.html
"Unemployment benefit (WW)
Your employment history will determine the amount and duration of payments. It comprises the first two months at 75 percent and thereafter 70 percent, of your last earned salary (there's a maximum daily rate of EUR 188.88). You must have worked in 26 out of the previous 36 weeks before the first day of unemployment. It can be restricted if other benefits are in operation. You apply for benefit at the UWV Werkbedrijf ([broken link removed]). Consult the Institute for Employee Benefit Schemes website (www.uwv.nl) for more information."
Ireland is €355.60 per week.
Netherlands Minimum Wage (2011)
From -
http://en.wikipedia.org/wiki/List_of_minimum_wages_by_country
€1,398.60 per month, €322.75 per week and per day for persons 23 and older; between 30-85% of this amount for persons aged 15–22[44]
Ireland, by comparison is €8.65 per hour
37.5 hours = €324.34
Look for corruption and fraud if you want to make savings.
Netherlands Unemployment Benefit
From -
http://www.expatica.com/nl/essentia...ch-social-security-system-explained-1704.html
"Unemployment benefit (WW)
Your employment history will determine the amount and duration of payments. It comprises the first two months at 75 percent and thereafter 70 percent, of your last earned salary (there's a maximum daily rate of EUR 188.88). You must have worked in 26 out of the previous 36 weeks before the first day of unemployment. It can be restricted if other benefits are in operation. You apply for benefit at the UWV Werkbedrijf ([broken link removed]). Consult the Institute for Employee Benefit Schemes website (www.uwv.nl) for more information."
Ireland is €355.60 per week.
Netherlands Minimum Wage (2011)
From -
http://en.wikipedia.org/wiki/List_of_minimum_wages_by_country
€1,398.60 per month, €322.75 per week and per day for persons 23 and older; between 30-85% of this amount for persons aged 15–22[44]
Ireland, by comparison is €8.65 per hour
37.5 hours = €324.34
Look for corruption and fraud if you want to make savings.