Suggestion to ease the cyclical nature of the budget

[gnf_ireland]

As stated on a number of threads, there is general surprise around the spend mentality of this budget. It is really like there is an election coming up and our 'right of centre' government is trying to eat into the electoral base of the populist parties.

One means of easing the impact of this would be to base the revenue calculation based on the average revenue collected over the last 3-5 years, and ignore the next year projected values. This would have the effect that the budget is not based on future growth, but on actual tax intake PLUS the averaging nature of it would go some way into leveling the cyclical nature our current model.

A budget deficit would be calculated against the average revenue intake rather than the projected revenue intake. The budget deficit would need to be managed within an agreed threshold - for current expenditure. Capital expenditure is another matter. There would need to be a mechanism that if the budget was primarily in deficit, then the deficit would be clawed back against the available 'average revenue' calculation over a number of years.

It would also mean that tax collection measures will only take effect in the future, rather than immediately. This may be a downside to the approach, especially closer to an election, but on the flip side may push a bit towards longer term planning. A government may be more willing to change tax collection rules at their term in office, so they can benefit from the extra revenue towards the end of it.

Not withstanding EU rules, would an approach like this be a runner, and would it be an improvement on the current model?

 

[Firefly]

One means of easing the impact of this would be to base the revenue calculation based on the average revenue collected over the last 3-5 years, and ignore the next year projected values. This would have the effect that the budget is not based on future growth, but on actual tax intake PLUS the averaging nature of it would go some way into leveling the cyclical nature our current model.

Maybe the Fiscal Advisory Council should have a lot more power. Can you imagine if they advised the government for each budget what the government could spend? By all means let politicians be politicians and let them decide how it is spent, but if they were constrained on the amount it could be a lot better.

 

[gnf_ireland]

Maybe the Fiscal Advisory Council should have a lot more power. Can you imagine if they advised the government for each budget what the government could spend? By all means let politicians be politicians and let them decide how it is spent, but if they were constrained on the amount it could be a lot better.

Absolutely - we need to move away from the concept of election budgets and short term thinking. No government can get away from this while they are always looking at getting reelected.
It also gives the politician's an out - as they can only work within their allocated budget, and therefore someone to blame for not overspending !

 

[T McGibney]

Maybe scrap the annual Budget circus and implement, say, 3 year budgets?

 

[The Horseman]

Maybe scrap the annual Budget circus and implement, say, 3 year budgets?

We certainly do need to change the way we set and spend the budget. We need to have both long and short term strategy (much like a business) and we should invest our budget accordingly.

it would appear budgets are just vote catchers and especially with Brexit and the increasing pressure on our Corporation tax rate we are due some very difficult times ahead and we need some buffer to mitigate them.

We don't seem to have learned from the past, a lot of our tax take was property related and now its Corporation tax. At least if we could spread the tax base we would not be so heavily reliant on one or two specific sectors for our tax revenue.

 

[gnf_ireland]

We don't seem to have learned from the past, a lot of our tax take was property related and now its Corporation tax.

We have learned nothing - as a government or as a population. All you need to do is try book a restaurant in Dublin on a weekend night at short notice and the boom is definitely back !! Spend Spend Spend appears to be both the government and populations approach to living...

 

[gnf_ireland]

Maybe scrap the annual Budget circus and implement, say, 3 year budgets?

I still like the idea of averaging out revenues so we can at least handle minor blips and changes to accounting rules that may offer one off boosts.
For example, if we were to offer another tax amnesty and the projected intake was 500m (for example), this should be spent over 3-5 years and not in a single year...

But anything is better than the annual Budget circus we have today...

 

[Brendan Burgess]

A very interesting topic.

One means of easing the impact of this would be to base the revenue calculation based on the average revenue collected over the last 3-5 years, and ignore the next year projected values.

We do this to some extent. The EU guidelines work out how much we can spend through the "structural deficit". I don't fully follow it but it's supposed to allow us to spend more in bad times and less in good times.

Maybe the Fiscal Advisory Council should have a lot more power.

Agree fully. They should not be advisory. They should tell the government what the budget deficit or surplus should be.

And if the government is projected to exceed the limits set down, then an external, non political, person would be appointed the Minister for Finance until order was fully restored.

Come to think of it, why not change the Constitution so that the Minister for Finance would have to be an external professional with no political affiliation?

That person could set a 10 year strategy and any political party would have to operate within that strategy.

 

[Purple]

Come to think of it, why not change the Constitution so that the Minister for Finance would have to be an external professional with no political affiliation?

As things stand he's the only Minister who cannot be appointed from the Seaned (The Taoiseach, Tánaiste and Minister for Finance must be members of the Dáil).
Eoin O'Malley wrote about this in 2012.

 

[TheBigShort]

Any 'Advisory Council' that is granted the power to decide what the budget deficit or surplus should be would no longer be advisory - instead they would be the (unelected) government.

 

[gnf_ireland]

Any 'Advisory Council' that is granted the power to decide what the budget deficit or surplus should be would no longer be advisory - instead they would be the (unelected) government.

Ok, call them the fiscal management council for that matter.
The are simply confirming, based on agree long term economic policies (can be determined by direct democracy if required), the amount of fiscal space the government has to work with. The government can decide how this money is spent and what policies are implemented.

In principle, this is no different to the current budgetary rules within the EU, except that I am proposing we are not allowed to continue to run a long term deficit and needs to balance itself over a period of 3-5 years.
All of this excludes capital expenditure obviously !

 

[TheBigShort]

based on agree long term economic policies (can be determined by direct democracy if required), the amount of fiscal space the government has to work with.

Policies, economic or otherwise, have a habit of changing once government administrations change.
I don't disagree with the sentiment, but it is often government policies that determine whether this is achievable or not.
For example, the Eurozone countries all agreed to limitations on borrowing and fiscal deficit limits - but now, because of, or allegedly because of those policies Italians are voting in politicians that promise to break free of those constraints. And they are only doing this because they believe these economic policies are bad for the economy.

The government can decide how this money is spent and what policies are implemented.

Again, depending on these decisions, the economic impact could be adverse. Some might think tax cuts for high earners, or might think reduce classroom sizes. Either or could ultimately benefit the economy or inadvertently have an adverse effect.

In principle, this is no different to the current budgetary rules within the EU, except that I am proposing we are not allowed to continue to run a long term deficit and needs to balance itself over a period of 3-5 years.
All of this excludes capital expenditure obviously

Perhaps im reading budget 2019 incorrectly, but my reading is that (excluding capital expenditure) we would be running a surplus?

http://budget.gov.ie/Budgets/2019/2019.aspx

Economic and Fiscal Outlook page 22.

 

[Opus2018]

Perhaps im reading budget 2019 incorrectly, but my reading is that (excluding capital expenditure) we would be running a surplus?

http://budget.gov.ie/Budgets/2019/2019.aspx

Economic and Fiscal Outlook page 22.

In response to your question - yes is the answer. We have been running a surplus for a few years now if you exclude capital spending. In intetrnational Government Finance Statistics terms, there is a difference beterrn current spending (Expense) and capital spending (Acquisition of non financial assets). The sum of these two items total Government Expenditure. By the way, when the Irish authorities report on the Excessive Deficit Procedure (EDP) returns you can see a split between current and capital spending in one of the tables. Of course, taking both into account, we are running a small deficit overall for 2018 and smaller again for 2019 as currently projected by the Department of Finance.

Hope this helps,

Opus 2018.

 

[Purple]

Other than the following bit I agree with you.

And they are only doing this because they believe these economic policies are bad for the economy.

The Italians are doing this for political rather than economic reasons.