Why are we still running a deficit on government spending?

In broad terms I agree but the speed of the correction is the issue in question.
My point about borrowing to fund public sector pay was that those who argue for stimulus ignore the fact that we already have a stimulus; that borrowing.
 
Purple said:
In broad terms I agree but the speed of the correction is the issue in question.
My point about borrowing to fund public sector pay was that those who argue for stimulus ignore the fact that we already have a stimulus; that borrowing.
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But, indisputably, that borrowing is hiking up our debt repayments every year, and it is happening at an extraordinary pace. If we don't close the gap in short order, the debt burden will have gone past the point of no return -- it is already close to the limit that most sane economists consider sustainable. The other worrying thing is that the plan is for the debt to peak just within the limits of sustainability, but that plan is also predicated on growth figures that have been consistently over-optimistic for several years. Even if we manage to avoid catastrophe, the higher the debt, the longer it will take to pay it off -- like a mortgage holder with a forty year mortgage who ends up paying several times the interest payments of one with a ten year mortgage. There is really no excuse for us pushing today's cost of living onto the next two generations. The pain has to be taken some time.
 
I'm relatively relaxed about the deficit. The real number to look at is the current deficit, €10bn in 2012. In the longer term, deficits of about €3bn a year would be sustainable at our level of GDP. So we're probably €7bn over target before the measures from last year's, this year's and next year's budgets kick in.

Of that €7bn, about €2bn is interest in respect of bank bailouts - I hope we never attempt to balance our books to service this (not to mention pay down the capital!) unless we are seriously flush with cash.

If the global economy eventually returns to any kind on normality, we should see at least 150,000+ people return to work. Between reduced social welfare and higher income tax, this would reduce the deficit by about €3-4bn.

My position is that we should not now levy taxes and set public sector wages and social welfare rates to immediately balance our books because:
1. Some level of current deficit is tolerable
2. We shouldn't be setting up the economy to service the bank bailout
3. We shouldn't be setting up the economy to have a balanced book in midst of the worst recession ever
4. There is a planned schedule of budget adjustments already in place and there's little point in accelerating or extending these.

In short, We have to look at what would be a long term sustainable position if we were in a normally functioning economy i.e. no massive debts, lower unemployment rates, etc and aim towards an equilibrium in that scenario. There's no point in trying to overshoot budget corrections or we'll simply destroy the domestic economy.

The weakness in this argument is what happens in a low growth scenario where we become swamped in debt, but I believe that we're done for regardless if we cannot grow and inflate away the debt.
 
dub_nerd said:
The other worrying thing is that the plan is for the debt to peak just within the limits of sustainability
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Very convenient! Reminds me of the soft landing argument. As you say, this fact is hugely sensitive to other factors such as growth. Once things eventually pan out, I would be shocked if decisions such as whether to make budgetary adjustments of €2bn or €3bn in the next budget will be the difference between survival and bankruptcy.

I think the important thing is that we are perceived to be actively taking measures to keep the deficit under control. We are doing that successfully (whether that's real, down to spin, because some guy in the US bought up €10bn of Irish govt debt or otherwise is irrelevant), and that is enough for now.
 
We could afford to run a budget deficit of 3 bn on GDP of 150 bn IF we got sustained GDP growth of 2%. We haven't seen that in a while.

We could afford to not pay the interest on our bank bailout money IF we weren't relying on the same sources for ongoing funding and to roll over existing debt.
 
dub_nerd said:
There is really no excuse for us pushing today's cost of living onto the next two generations. The pain has to be taken some time.
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We should have extended the maturity date of the promissory notes on to the next 20 generations at least - pay them off over 1000 years and let normal inflation take care of the real value of the notes. We need every ounce of help with can get because austerity coupled with a contraction in private sector lending across europe will result in no recovery. Corporations and households deleveraging is the last thing you need with austerity.
 
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