Why does nobody disagree with the Fiscal Council's report?

Purple

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The €200 billion figure needs to be reduced by about €20 billion or so to reflect the value of our stakes in AIB, BoI and ptsb.
In other words the net debt figure is €185 billion, of which over €150 billion is a result of living beyond our means with the balance due to the so-called bank bailout.
 

Brendan Burgess

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Hi Coyote

The "how soon" is very difficult to answer. But we must start cutting it now while we are in such a temporarily healthy economy. It's clear that we could not get back to the €50 billion of debt we had in 2007 in ten years.

But we should realise that we cannot continue to increase it every year because our economy is artificially growing.


(specifically which spending cuts and/or tax increases
This has been the problem in the debate. Almost everyone agrees with the Fiscal Council, but no one will specify how the cuts will be made.

I will kick off another thread on it.

Brendan
 

Brendan Burgess

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I think it works out like this in rough figures

1) Starting Debt: €50 billion
2) Net cost of bank bailout €40 billion ( €60 billion less €20 billion stake)
3) Living beyond our means over the past 12 years : € 90 billion [Or "investing in critical infrastructure" if you prefer]
4) Net debt: €180 billion ( €200 billion - €20 billion ]

I would like to see someone actually compile the exact figures.

In round terms the bank bailout has cost about 1/3rd of the increase in debt and about 25% of our total debt.

Brendan
 

Brendan Burgess

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I have updated the original graph to show the cash balances held by the government.

3861
Our net debt rose from about €30 billion to €160 billion ( €180 billion less our stakes in the banks)
 

WolfeTone

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In case there is any doubt, I am not suggesting for a minute that we are not highly indebted and that there hasnt been serious mismanagement of public funds over the decades.
But the question is really, I guess, is how we manage the situation going forward. The FAC have offered their view, and from the perspective of financial prudence it makes sense. But in determining their views in advising fiscal prudence they are distinctly lacking in how this prudence should be applied. Conveniently for them, it is not their remit to tell government how they should go about implementing fiscal prudence. So therein lies the problem. Nobody can really argue that fiscal prudence and debt pay-down is not reasonable and responsible.
But implementing that is a whole different ball game. So if we were to engage in a process of running budget surpluses to pay down debt, where should we extract these surpluses from? Cutting welfare, health, education budgets? Increase tax on income? On corporations? Sell off state assets? Or by some other means?
 

Brendan Burgess

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WolfeTone

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Proposed spending cuts and tax increases to cut the national debt

Even from the handful of proposals for cuts and tax increases in the sister topic highlights the variance of opinion on how to reduce national debt. This is the dilemma for government as it is clear it would not be possible to please all of the people all time.
This is the dilemma that the FAC dont have, and why Finlays criticism is valid.

Even going through the specific proposals in the other topic, is there any that stand out that would actually have any significant impact in reducing the debt? Most appear to be nothing more than tinkering around the edges, that would raise some funds, but a drop in the ocean against the debt.
I assume the consideration is to reduce debt by some significant amount €10bn, €20bn?
It probably won't be worth the effort if say, after another 5yrs of cutting services, reducing pay, increasing taxes etc if the debt has only moved from €200bn to €198bn?
Would it?
 

odyssey06

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Even from the handful of proposals for cuts and tax increases in the sister topic highlights the variance of opinion on how to reduce national debt. This is the dilemma for government as it is clear it would not be possible to please all of the people all time. This is the dilemma that the FAC dont have, and why Finlays criticism is valid.
It would not be possible to please all of the people all of the time.
When is such a thing ever possible in the history of governance or budgets?
If we increase borrowing or increase spending, would all people be pleased by how much was borrowed to spend on what? No.
I don't see how this is any kind of valid criticism at all on any level.

Even going through the specific proposals in the other topic, is there any that stand out that would actually have any significant impact in reducing the debt? Most appear to be nothing more than tinkering around the edges, that would raise some funds, but a drop in the ocean against the debt. I assume the consideration is to reduce debt by some significant amount €10bn, €20bn?
It probably won't be worth the effort if say, after another 5yrs of cutting services, reducing pay, increasing taxes etc if the debt has only moved from €200bn to €198bn? Would it?
The absolute line in the sand is to hold the line on no increase in debt.
Plus there would be wider benefits to the economy in terms of less 'heat' in an already overheated economy.
Sure let's borrow another €50 billion if it doesn't directly affect us for 5 years.
 

WolfeTone

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The criticism is that the FAC dont have to decide whose benefits are cut, which services are cut, whose taxes are increased, whose schools should be under-staffed, overcrowded, which medical waiting list should be tackled first..etc...etc...
What to do with increasing homelessness? Cut pay in public sector? Why not increase tax on higher earners instead?

Faced with those decisions then it becomes trickier than just "dont increase borrowing and pay down debt".
 

WolfeTone

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The absolute line in the sand is to hold the line on no increase in debt.
That is fine, so either stop investing in capital infrastructure or raise taxes. Or cut services....but someone has to decide and if it transpires that your taxes on your income will be increased to pay down debt, will that be ok?
 

odyssey06

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The criticism is that the FAC dont have to decide whose benefits are cut, which services are cut, whose taxes are increased, whose schools should be under-staffed, overcrowded, which medical waiting list should be tackled first..etc...etc...
What to do with increasing homelessness? Cut pay in public sector? Why not increase tax on higher earners instead?
Faced with those decisions then it becomes trickier than just "dont increase borrowing and pay down debt".
True. But that's not their role. Their job is to call out the 'fiscal space'. It is not to make hard choices or decisions, it is to be technical experts on a particular subject.
We elect governments to make those hard choices, or ideally to present a range of choices for the voters to decide - but those choices should be to operate within the space defined by the FAC.
Or the government should just be honest and disband the FAC.
So it's a mis-placed invalid criticism and shows a mis-understanding by Finlay of the role of the FAC.
 

WolfeTone

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but those choices should be to operate within the space defined by the FAC.
Not at all. The FAC has no statutory authority to dictate to government what the fiscal 'space' is, it can only advise.
I agree, it should be disbanded.
 

odyssey06

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Not at all. The FAC has no statutory authority to dictate to government what the fiscal 'space' is, it can only advise.
I agree, it should be disbanded.
Well if you're not going to listen to their advice, you should disband it.
But remember the storm clouds they warn of don't disappear just because you shoot the messengers :)
 

Purple

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That is fine, so either stop investing in capital infrastructure or raise taxes. Or cut services....but someone has to decide and if it transpires that your taxes on your income will be increased to pay down debt, will that be ok?
Nonsense. The propaganda peddled by the protected sector is that we have a choice of taxing more or reducing services. The reality is that in any properly run organisation structural changes, improvements in IT, improvements in process etc all result in delivering more with the same of fewer resources. It in only in the protected sector where people can keep dipping their hands into other people's pockets to subsidise their own inefficiency.

So please stop with the same old tired false dichotomies and ask those who deliver services on behalf of the people of Ireland to take an honest look at the organisations which they are part of and ask themselves if they could do better.
 

NoRegretsCoyote

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Well if you're not going to listen to their advice, you should disband it.
But remember the storm clouds they warn of don't disappear just because you shoot the messengers :)
There are literally over a hundred of NGOs and representative bodies who give advice on how to spend more and tax less. The Minister for Finance spends a couple of weeks meeting them every year before the Budget.

None of them has a useful overall view of what is sustainable at the aggregate level.

That's why the Fiscal Council - costing well under €1m a year - is great value.
 

WolfeTone

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The reality is that in any properly run organisation structural changes, improvements in IT, improvements in process etc all result in delivering more with the same of fewer resources

Of course. But that in general terms requires investment, requires spending. It may be cost efficient in the future, but I dont know how it reduces debt in the short-term.
If we take the children's hospital for instance. I would hazard a guess that beneath all the media and political procrastination about the cost that there are sound solid arguements from experts in the medical profession that point to increased efficiencies in the delivery of healthcare for children, if not to increased efficiencies in public finances.
 

Purple

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Of course. But that in general terms requires investment, requires spending. It may be cost efficient in the future, but I dont know how it reduces debt in the short-term.
If we take the children's hospital for instance. I would hazard a guess that beneath all the media and political procrastination about the cost that there are sound solid arguements from experts in the medical profession that point to increased efficiencies in the delivery of healthcare for children, if not to increased efficiencies in public finances.
I'm involved in change management and systems improvement through things like 5S and LEAN. The costs in dealing with work practice changes are minimal, sometimes nonexistent. They are also often the biggest savings. In my experience 5-10% improvement in productivity and so a 5-10% reduction in labour costs. Of course the big improvements in productivity, the 200%-300% improvements, they take capital investment. I work in a small organisation so the potential for cost savings in work practices are much lower than they would be in the State sector. My guess is that the State sector is overstaffed by somewhere between 20 and 30% due to process duplication, bad work practices and labour inflexibility. Fixing that would mean people wouldn't die on trolleys and the public would have the services they actually pay for. It would be cost effective and it would make the country a better place. We could reduce our debt, reduce taxes, reduce inequality and increase quality of life for hundreds of thousands of people.

Of course it will never happen because the management within the State sector have neither the ability, the will or the mindset to do it and even if they did the Unions would stop them.
 

WolfeTone

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Im not doubting that there are huge opportunities to improve processes and management of resources. Unfortunately there are two critical elements that may prevent savings to reduce national debt.
First, eradicating duplicate, inefficient processes does not necessarily result in cost savings, rather it may result in the provision of better services. An employee who is no longer required for a particular function can be redeployed to provide functions that are not being adequately provided in the first instance. So not cost savings, just better services.
Secondly, and more critically, political priorities can have a way of interfering in the smooth provision of services. Led by media and opposite procrastination, at the stroke of pen the best laid plans are turned upside down.
If Im not mistaken, there are some 300,000 employed in public services, or about 18% of the workforce. By any yardstick in the developed world this is competitive - notwithstanding all the deficiencies and perceived deficiencies that permeate the media headlines, here, and in all developed countries.
That said, there will always be opportunity for cost savings, the question is, to what extent would it impact on national debt. I would estimate that the public sector not overstaffed at all, but probably 10-15% deployed inefficiently.
 
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