Budget 2011: A new strategy?

Sleepy

Is there a valid economic argument against basing current expenditure in 2011 on expected tax revenues (widening the tax net and raising income taxes to the point of diminishing returns across the board) with zero borrowing?

Allocate the forecasted revenue based on priority i.e. x% to Education, y% to Health, z% to Justice etc. and force the minister and their general secretaries to balance the books within their department through whatever means they have at their disposal - redundancies, pay cuts / freezes, efficiency savings, reductions in welfare benefits, grants etc.

I know the unions would have a hissy fit, there'd be huge protests in the street etc. but in the long term, wouldn't this approach lead to our best chance of re-gaining stable economic growth?

ei.sdraob

that would be too sensible

you need a populist plan that would never work

MaceFace

Sleepy wrote: »

Is there a valid economic argument against basing current expenditure in 2011 on expected tax revenues (widening the tax net and raising income taxes to the point of diminishing returns across the board) with zero borrowing?

Allocate the forecasted revenue based on priority i.e. x% to Education, y% to Health, z% to Justice etc. and force the minister and their general secretaries to balance the books within their department through whatever means they have at their disposal - redundancies, pay cuts / freezes, efficiency savings, reductions in welfare benefits, grants etc.

I know the unions would have a hissy fit, there'd be huge protests in the street etc. but in the long term, wouldn't this approach lead to our best chance of re-gaining stable economic growth?

Simple put: no. It makes no sense.
Your suggestion would result in the virtual elimination of the public sector and social welfare.

Sleepy

Why does it make no sense MaceFace? What are the negative effects to our economy or position to grow?

ei.sdraob

MaceFace wrote: »

Simple put: no. It makes no sense.
Your suggestion would result in the virtual elimination of the public sector and social welfare.

Bullsh1t! with a capital B

We had both welfare and public services in 2003, thats the last time the books balanced and before the onset of Celtic Tiger 2.0, thats also what our tax income has fallen back to

From what I remember the country wasnt too bad off at all back then
The faster you and your unions realize that the world has changed and we are after pissing away better part of the decade, the better for all (including yourselves)

DJCR

Fixed costs and downturns put paid to that. You would have plenty of initiatives that would have been started and never finished etc

rightwingdub

It should be illegal to run a budget deficit and public spening, welfare or OAP's should only be increased in line with inflation not above the rate of inflation, a culture of stingyness should always apply as regards public spending regardless of how well or how badly the economiy is doing.

Okay in budget 2011, much as I'd love to see a budget surplus I think it is completely unrealistic, the government should be looking to cut at least €8 billion possibly up to €11 billion but even that is unlikely to happen.

1) Cut welfare by €3 billion in the next budget, that would equate to basic welfare cuts of between 10-15%.
2) Cut public sector pay by a further 10%, abolish all allowances also for public sector workers.
3) Minimum of 30,000 compulsory redundancies.

DJCR

rightwingdub wrote: »

It should be illegal to run a budget deficit and public spening, welfare or OAP's should only be increased in line with inflation not above the rate of inflation, a culture of stingyness should always apply as regards public spending regardless of how well or how badly the economiy is doing.

Okay in budget 2011, much as I'd love to see a budget surplus I think it is completely unrealistic, the government should be looking to cut at least €8 billion possibly up to €11 billion but even that is unlikely to happen.

1) Cut welfare by €3 billion in the next budget, that would equate to basic welfare cuts of between 10-15%.
2) Cut public sector pay by a further 10%, abolish all allowances also for public sector workers.
3) Minimum of 30,000 compulsory redundancies.

But you always want to increase consumption (not in a bubble mind you - but generally).

Technically its:

GNP = C + I + G + NX

C = consumption expenditure (private sector) (tax income)
I = Gross private investment
G = Government purchases of goods and services i.e. govt. investments to increase the other 2
NX = net exports

Or: you have to spend money to make money.


oh your name suits you by the way

murf313

rightwingdub wrote: »

It should be illegal to run a budget deficit and public spening, welfare or OAP's should only be increased in line with inflation not above the rate of inflation, a culture of stingyness should always apply as regards public spending regardless of how well or how badly the economiy is doing.

Okay in budget 2011, much as I'd love to see a budget surplus I think it is completely unrealistic, the government should be looking to cut at least €8 billion possibly up to €11 billion but even that is unlikely to happen.

1) Cut welfare by €3 billion in the next budget, that would equate to basic welfare cuts of between 10-15%.
2) Cut public sector pay by a further 10%, abolish all allowances also for public sector workers.
3) Minimum of 30,000 compulsory redundancies.

your name suits you all right.....

you must live on a cloud because if what you suggested happened there would be war on the streets.

ei.sdraob

DJCR wrote: »

But you always want to increase consumption (not in a bubble mind you - but generally).

Technically its:

GNP = C + I + G + NX

C = consumption expenditure (private sector) (tax income)
I = Gross private investment
G = Government purchases of goods and services i.e. govt. investments to increase the other 2
NX = net exports

Or: you have to spend money to make money.

nope you want to increase NX = net exports

as thats what generates "real wealth" (considering we dont have natural resources we can exploit and export)

we tried selling houses to each other and capuchinos

didnt end well now did it?

Permabear

This post has been deleted.

DJCR

ei.sdraob wrote: »

nope you want to increase NX = net exports

as thats what generates "real wealth" (considering we dont have natural resources we can exploit and export)

we tried selling houses to each other and capuchinos

didnt end well now did it?

Of course you want to increase Net Exports... now, how does one go about doing that???

We have to invest in industry here ... Fire out FDA grants right left and centre.... get business in here for years to come. Lets not forget our own industries as well!!! Govt. spending must increase too - Infrastructure doesn't grow on trees!!

rightwingdub

murf313 wrote: »

your name suits you all right.....

you must live on a cloud because if what you suggested happened there would be war on the streets.

I am a right winger by Irish and European standards, more centrist if Iwas living in America, why would there be war on the streets?

The government can continue to cut the cost of living in this country by reducing local authority rents, breaking up the ESB into separte companies and privatsing them meaning that prices will be cheaper, drive the cost of living down I say and cut taxes.

murf313

rightwingdub wrote: »

I am a right winger by Irish and European standards, more centrist if Iwas living in America, why would there be war on the streets?

The government can continue to cut the cost of living in this country by reducing local authority rents, breaking up the ESB into separte companies and privatsing them meaning that prices will be cheaper, drive the cost of living down I say and cut taxes.

Yes but the government are not making the cost of living any cheaper.

there would be war on the streets as you propose to make 30,000 people redundant in one fell swoop, cut 300,000 peoples salary by ANOTHER 10% and take away allowances and cut SW payments by 15%. some how i think those SW welfare recipients would be the loudest as well. especially the dole lifers!

ei.sdraob

DJCR wrote: »

Of course you want to increase Net Exports... now, how does one go about doing that???

We have to invest in industry here ... Fire out FDA grants right left and centre.... get business in here for years to come. Lets not forget our own industries as well!!! Govt. spending must increase too - Infrastructure doesn't grow on trees!!

Invest whith what money?

Right now all our borrowing is going into unproductive blackholes called Banks, Public Services and Welfare

will any of the above "investements" create a single job or generate any real wealth to payback the interest on this loans? nope



I wouldnt mind if they were building more infrastructure or financing small businesses but they are not, the money that could be going into any sort of "stimulus" is being pissed away

Permabear

This post has been deleted.

rightwingdub

murf313 wrote: »

Yes but the government are not making the cost of living any cheaper.

there would be war on the streets as you propose to make 30,000 people redundant in one fell swoop, cut 300,000 peoples salary by ANOTHER 10% and take away allowances and cut SW payments by 15%. some how i think those SW welfare recipients would be the loudest as well. especially the dole lifers!

If there are riots on the streets call in the army and use lethal force on people who are involved in criminal activity ie rioting, that would quickly quell and civil unrest.

Welfare increased a lot during the celtic tiger, if welfare was cut by 15% it would bring welfare levels back down to 2006 levels where the basic rate of social welfare was €165.80 which is till too high.

MaceFace

Sleepy wrote: »

Why does it make no sense MaceFace? What are the negative effects to our economy or position to grow?

ei.sdraob wrote: »

Bullsh1t! with a capital B

We had both welfare and public services in 2003, thats the last time the books balanced and before the onset of Celtic Tiger 2.0, thats also what our tax income has fallen back to

From what I remember the country wasnt too bad off at all back then
The faster you and your unions realize that the world has changed and we are after pissing away better part of the decade, the better for all (including yourselves)

Well, think about it.
Last year we took €4b out of government spending. What the OP is suggesting is this year we increase that to ~€20b.

Here is last years cuts (€4 billion)
Public sector wages - €1 billion
Social welfare - €760 million
day-to-day spending programmes - €980 million
capital investment projects - €960 million

So, multiply this by 5 and you are then asking the PS to take another 25-40% cut in wages, or large scale redundancies (which themselves will cost a lot of money to implement and fund through Social Welfare).

Cutting day to day spending and capital investment by 5 times the amount would not be achieveable because the the more you cut the more difficult it is to find savings.

So, you have to hammer the PS and Social Welfare more.
Assuming cutting these payments has the same economic affect as the recent interest rate increases (as you are taking money from peoples pockets):
"every penny taken by the banks in will mean a one-for-one contraction in direct consumer spending and household investment, amplified through the usual multiplier effects 3-4 fold in the course of just one year."
(http://trueeconomics.blogspot.com/)

So, however much people dislike PS workers and their wages, they have to see that for every euro you cut from their wages, it will mean 3-4 euro cut from the economy. This in turn will lead to a massive downward spiral which we could not escape from without borrowing money (which the OP does not want to do).

I don't have time to go into examples more, but if anyone thinks this is possible, please give examples and you will very quickly see it makes no sense.

murf313

rightwingdub wrote: »

If there are riots on the streets call in the army and use lethal force on people who are involved in criminal activity ie rioting, that would quickly quell and civil unrest.

Welfare increased a lot during the celtic tiger, if welfare was cut by 15% it would bring welfare levels back down to 2006 levels where the basic rate of social welfare was €165.80 which is till too high.

im not saying your wrong in what you say, im just saying that civil unrest would be a possible outcome.

do you forget that soldiers are public servants? i dont think they would be too happy about your proposed cuts and i somehow doubt they would be too happy about shooting civilians. (coming from an ex-soldier) dont forget this is the Irish Defence Forces your talking about, not 2 para in the british army!

just shows the lows that you PS bashers will go to though. suggesting that protesters should be shot on sight...............:eek:

rightwingdub

murf313 wrote: »

im not saying your wrong in what you say, im just saying that civil unrest would be a possible outcome.

do you forget that soldiers are public servants? i dont think they would be too happy about your proposed cuts and i somehow doubt they would be too happy about shooting civilians. (coming from an ex-soldier) dont forget this is the Irish Defence Forces your talking about, not 2 para in the british army!

just shows the lows that you PS bashers will go to though. suggesting that protesters should be shot on sight...............:eek:

I've no problem with PEACEFUL PROTESTS, people have the right to protest peacefully anyone recognises that, what I will not tolerate is rioting on the streets with shops been looted, if anyone loots a shop shoot them on site, tough s**t they shouldh't have been comitting crime and vandalising shops, thats my opinion.

murf313

rightwingdub wrote: »

I've no problem with PEACEFUL PROTESTS, people have the right to protest peacefully anyone recognises that, what I will not tolerate is rioting on the streets with shops been looted, if anyone loots a shop shoot them on site, tough s**t they shouldh't have been comitting crime and vandalising shops, thats my opinion.

whos going to shoot them though?? because the army wont...... maybe you should grab yourself a gun and go vigilante on their ass

DJCR

ei.sdraob wrote: »

Invest whith what money?

Right now all our borrowing is going into unproductive blackholes called Banks, Public Services and Welfare

will any of the above "investements" create a single job or generate any real wealth to payback the interest on this loans? nope



I wouldnt mind if they were building more infrastructure or financing small businesses but they are not, the money that could be going into any sort of "stimulus" is being pissed away

We are borrowing money...

Govt. investment in projects are running at 5% GDP - thats double the EU average.

It would be the hope of many that the banks start relending soon.... they should be nearly recapitalised by now and that will allow them to lend when economic growth returns later this year.

THis will lead to an increase in investment by domestic firms as they will have access to the credit, to start new businesses, epand businesses that have survived leading to increased tax returns etc etc etc

and leading of course to increased exports.

ei.sdraob

MaceFace wrote: »

Well, think about it.
Last year we took €4b out of government spending. What the OP is suggesting is this year we increase that to ~€20b.

Here is last years cuts (€4 billion)
Public sector wages - €1 billion
Social welfare - €760 million
day-to-day spending programmes - €980 million
capital investment projects - €960 million

So, multiply this by 5 and you are then asking the PS to take another 25-40% cut in wages, or large scale redundancies (which themselves will cost a lot of money to implement and fund through Social Welfare).

Cutting day to day spending and capital investment by 5 times the amount would not be achieveable because the the more you cut the more difficult it is to find savings.

So, you have to hammer the PS and Social Welfare more.
Assuming cutting these payments has the same economic affect as the recent interest rate increases (as you are taking money from peoples pockets):
"every penny taken by the banks in will mean a one-for-one contraction in direct consumer spending and household investment, amplified through the usual multiplier effects 3-4 fold in the course of just one year."
(http://trueeconomics.blogspot.com/)

So, however much people dislike PS workers and their wages, they have to see that for every euro you cut from their wages, it will mean 3-4 euro cut from the economy. This in turn will lead to a massive downward spiral which we could not escape from without borrowing money (which the OP does not want to do).

I don't have time to go into examples more, but if anyone thinks this is possible, please give examples and you will very quickly see it makes no sense.

Look we will have to reach them levels one way or another, most of the last decade didnt happen, not only did we not grow in real terms we if anything we shrunk and destroyed real wealth by putting into bricks and dirt

Your argument is that cutting to 2003 level in one year might be too much of a "shock", and (shock horror!) I would tend to agree with you
But the problem is we are still on trajectory where our expenses are increasing while the tax income so far thsi year is looking worse than 2009

So maybe a plan to reduce it over 3-5 years and have the books balanced by then (we would still have to payback the 80 billion we already borrowed all the way into 2025), the act alone should ensure that any furtehr borrowing would become cheaper as investors would realize we are "serious", also with the cost of living falling at close to 10% a year it would make any "shock" tolerable


Unfortunately none of the political parties want to bring the country back into line

The cost of housing has fallen way past 2003 levels already, the cost of living is approaching it (except surprise surprise anything thats tied to government) as per last CSO report


edit: you could also widen the taxnet and bringing them workers who are not in it now (which as OECD mentioned is very unusual), that could move our target to 2004 levels or so

ei.sdraob

DJCR wrote: »

We are borrowing money...

Govt. investment in projects are running at 5% GDP - thats double the EU average.

It would be the hope of many that the banks start relending soon.... they should be nearly recapitalised by now and that will allow them to lend when economic growth returns later this year.

THis will lead to an increase in investment by domestic firms as they will have access to the credit, to start new businesses, epand businesses that have survived leading to increased tax returns etc etc etc

and leading of course to increased exports.

Lol "show me the money" :rolleyes: wake me up when credit is available again


you havent addressed my point
every euro in debt we take on to pay public services, welfare, banks is a euro (+interest) which we can not spend on capital investment, stimuluses (ha!) and "job creation" waffle
its not difficult to understand


edit: I love how you are quoting GDP figures, you know well that our GDP figures are distorted by a large money laundering operation in IFSC, you also know that the more government borrows the more the GDP grows...

Flex

MaceFace wrote: »

Well, think about it.
Last year we took €4b out of government spending. What the OP is suggesting is this year we increase that to ~€20b.

Here is last years cuts (€4 billion)
Public sector wages - €1 billion
Social welfare - €760 million
day-to-day spending programmes - €980 million
capital investment projects - €960 million

So, multiply this by 5 and you are then asking the PS to take another 25-40% cut in wages, or large scale redundancies (which themselves will cost a lot of money to implement and fund through Social Welfare).

Cutting day to day spending and capital investment by 5 times the amount would not be achieveable because the the more you cut the more difficult it is to find savings.

So, you have to hammer the PS and Social Welfare more.
Assuming cutting these payments has the same economic affect as the recent interest rate increases (as you are taking money from peoples pockets):
"every penny taken by the banks in will mean a one-for-one contraction in direct consumer spending and household investment, amplified through the usual multiplier effects 3-4 fold in the course of just one year."
(http://trueeconomics.blogspot.com/)

So, however much people dislike PS workers and their wages, they have to see that for every euro you cut from their wages, it will mean 3-4 euro cut from the economy. This in turn will lead to a massive downward spiral which we could not escape from without borrowing money (which the OP does not want to do).

I don't have time to go into examples more, but if anyone thinks this is possible, please give examples and you will very quickly see it makes no sense.

What proportion of those wages would end up in a bank account, being spent on imported goods or making their way out of our economy and into foreign economies in other ways (ie. cross border shopping, etc)? Even during the peak of the Celtic Tiger years tax revenue never reached €50B a year, while this year we're forecasted to spend ~€55B (with tax revenue of ~€33B). Next year the hope is tax revenue will reach €44B, even then we're going to over €10B short. Ireland is providing SW and public services way beyond what we can afford.

The benefits of lower government spending would be in the ability of the government to find sufficient savings so as that they wouldnt have to raise taxes, or at the very least raise taxes less than they would have. Raising taxes will

• reduce the spending power of everyone in the economy
• reduce consumer confidence throughout the whole economy
• put more pressure on small-medium businesses which can lead to more job losses which would lead to a igher social welfare bill and less income tax (requiring further tax increases,..... etc)
• discourage invesment as the potential returns and benefit vs. risk of the investment are reduced
• Ireland attempted the policy of borrowing, taxing and spending (or as the unions call it "growing") its way out recession/depression in the 1980's which failed terribly.

At the same time alot of economies were actually booming. In fact after Reagan was elected the US moved out of an economic slump due to his policy of lower spending and lower taxes. The British economy also picked up in the latter half of the 1980's, due in part to reduced government spending. Our tax/borrow/spend economy was still stagnating however. It wasnt until the Tallaght Strategy and the cutting of government spending and reduced taxation did our economy begin to recover and set itself up for the (real) export driven boom of the early 1990's.

DJCR

ei.sdraob wrote: »

Lol "show me the money" :rolleyes: wake me up when credit is available again


you havent addressed my point
every euro in debt we take on to pay public services, welfare, banks is a euro (+interest) which we can not spend on capital investment
its not difficult to understand

No, it's very easy to understand.. but businesses usually make money at profit levels higher than that of interest rates (otherwise, why bother stick your money in a bank and let it grow).

ei.sdraob wrote: »

unproductive blackholes called Banks, Public Services and Welfare

Inefficient Public Services, whatever your view on welfare I believe its important ... and as for banks its just going to take a little more time!!

ei.sdraob wrote: »

I wouldnt mind if they were building more infrastructure or financing small businesses but they are not, the money that could be going into any sort of "stimulus" is being pissed away

They are building infrastructure (5% GDP):rolleyes:, financing small businesses is great but in recession they could be just as big a drain on resources... you don't want to be financing inefficient uncompetitive companies.

Stimulus - Small Open economy... I don't know how to even contemplate starting to work that out....

DJCR

ei.sdraob wrote: »

edit: I love how you are quoting GDP figures, you know well that our GDP figures are distorted by a large money laundering operation in IFSC, you also know that the more government borrows the more the GDP grows...

No and Yes respectively (I'm probably a little naive).

ei.sdraob

DJCR wrote: »

No, it's very easy to understand.. but businesses usually make money at profit levels higher than that of interest rates (otherwise, why bother stick your money in a bank and let it grow).



Inefficient Public Services, whatever your view on welfare I believe its important ... and as for banks its just going to take a little more time!!



They are building infrastructure (5% GDP):rolleyes:, financing small businesses is great but in recession they could be just as big a drain on resources... you don't want to be financing inefficient uncompetitive companies.

Stimulus - Small Open economy... I don't know how to even contemplate starting to work that out....

I see :rolleyes: to sumarize

* supporting business and trying to "create" jobs is bad

* paying for fat Public Services/Welfare and bailing out rotten banks is good

yes i can see your logic now

Amhran Nua

DJCR wrote: »

Of course you want to increase Net Exports... now, how does one go about doing that???

You need
a) A workforce tooled up to manufacture things for export
b) An internationally capable marketing and sales sector to sell what they manufacture, able to get out there and tackle foreign markets on their own terms
c) Investment in carefully targeted private enterprise from both public and private sources (the seed capital to get businesses started)
d) A legislative environment geared towards making these manufacturing or production processes as red-tape free as possible
e) A more modern infrastructure

All quite doable.

On the deficit, the privatisation of the Health sector would shave a good €7 billion off the deficit at minimum (not getting into a big argument on that here, already had that discussion a couple of days ago in this forum), while giving hospitals a massive injection of investment for equipment and facilities, along the lines of the Dutch system.

A bit of a nip and tuck on welfare, another two billion, efficiencies introduced in the public sector (restructuring the maze of quangos and for example portacabin-style costs) a further two billion, and you're halfway there already.

Rising tax revenues from your export and industrial projects should help reduce the deficit by another lets say three billion in short order (remember the recession has driven expenditure VAT take down very low, this is not normal), along with reducing unemployment with new businesses, again shrinking the welfare bill.

Over the course of a few years things don't look that bad at all, if the above were followed. Not exactly a lot of fun, but not bad. Of course this entirely excludes the problems with the banks, but thats another kettle of fish.

DJCR

ei.sdraob wrote: »

I see :rolleyes: to sumarize

* supporting business and trying to "create" jobs is bad

* paying for fat Public Services/Welfare and bailing out rotten banks is good

yes i can see your logic now

You know that isn't what I was alluding to.

Amhran Nua wrote: »

You need
a) A workforce tooled up to manufacture things for export
b) An internationally capable marketing and sales sector to sell what they manufacture, able to get out there and tackle foreign markets on their own terms
c) Investment in carefully targeted private enterprise from both public and private sources (the seed capital to get businesses started)
d) A legislative environment geared towards making these manufacturing or production processes as red-tape free as possible
e) A more modern infrastructure

All quite doable.

Yes that is what I said, thanks for agrre to the fact that the govt. will have to invest as well... no matter where the money comes from.

Amhran Nua

DJCR wrote: »

Yes that is what I said, thanks for agrre to the fact that the govt. will have to invest as well... no matter where the money comes from.

Yup, I agree fully.

MaceFace

Flex wrote: »

What proportion of those wages would end up in a bank account, being spent on imported goods or making their way out of our economy and into foreign economies in other ways (ie. cross border shopping, etc)? Even during the peak of the Celtic Tiger years tax revenue never reached €50B a year, while this year we're forecasted to spend ~€55B (with tax revenue of ~€33B). Next year the hope is tax revenue will reach €44B, even then we're going to over €10B short. Ireland is providing SW and public services way beyond what we can afford.

The benefits of lower government spending would be in the ability of the government to find sufficient savings so as that they wouldnt have to raise taxes, or at the very least raise taxes less than they would have. Raising taxes will

• reduce the spending power of everyone in the economy
• reduce consumer confidence throughout the whole economy
• put more pressure on small-medium businesses which can lead to more job losses which would lead to a igher social welfare bill and less income tax (requiring further tax increases,..... etc)
• discourage invesment as the potential returns and benefit vs. risk of the investment are reduced
• Ireland attempted the policy of borrowing, taxing and spending (or as the unions call it "growing") its way out recession/depression in the 1980's which failed terribly.

At the same time alot of economies were actually booming. In fact after Reagan was elected the US moved out of an economic slump due to his policy of lower spending and lower taxes. The British economy also picked up in the latter half of the 1980's, due in part to reduced government spending. Our tax/borrow/spend economy was still stagnating however. It wasnt until the Tallaght Strategy and the cutting of government spending and reduced taxation did our economy begin to recover and set itself up for the (real) export driven boom of the early 1990's.

Your points may be relevant if we are discussing the general idea of cutting your way out vs growing your way out, but none of the above is really relevant to the issue of cutting spending by €20 billion in Budget 2011.

Simply put, there is no way in hell you can cut the government spending by 30% that results in anything except game over.

https://www.youtube.com/watch?v=eeOHEU7Ykyg