Instead of cutting the deficit to reach 3% of GDP, why not try to grow GDP...

hatrickpatrick

...So that 3% of it will be a larger number?

The rules simply state that we must cut our deficit to 3% of GDP by 2014. One of the ways to do this is to assume GDP will stay the same and try to cut the budget down to that. The "top down" approach, if you will.

How about a "bottom up" approach whereby we instead put every resource available into trying to get the economy back on the tracks so that it starts growing again, and then when GDP begins to expand, the target of 3% won't be as difficult as it is now?

Could it be done?

ei.sdraob

hatrickpatrick wrote: »

...So that 3% of it will be a larger number?

The rules simply state that we must cut our deficit to 3% of GDP by 2014. One of the ways to do this is to assume GDP will stay the same and try to cut the budget down to that. The "top down" approach, if you will.

How about a "bottom up" approach whereby we instead put every resource available into trying to get the economy back on the tracks so that it starts growing again, and then when GDP begins to expand, the target of 3% won't be as difficult as it is now?

Could it be done?

so tell us by how much would the economy have to grow to plug a 20 billion hole

our expenditure is still at tiger levels while income has gone back about 7-8 years by this stage

Godge

ei.sdraob wrote: »

so tell us by how much would the economy have to grow to plug a 20 billion hole

our expenditure is still at tiger levels while income has gone back about 7-8 years by this stage

Well assume GDP is 100 bn. Budget deficit of 12 bn is 12% (I think if you exclude banks we are heading for somewhere between 11 and 12% this year).

In order for 12 bn to be 3%, GDP would have to quadruple to 400 bn. Assume that we invest the full deficit (12bn) in growth-creating business, they would have to generate 300 bn in four years.

Not possible.

hatrickpatrick

^ I'm not suggesting that we should try to raise GDP so much that no cuts are necessary, that's ridiculous of course.

But I AM suggesting a combination of the two approaches. The government's current approach, which cuts the deficit but will end up also reducing GDP, won't get us anywhere in the long run. Eventually they will run out of cuts to make which don't literally kill economic activity. So we're going to need SOME increase in GDP no matter what.

ei.sdraob

hatrickpatrick wrote: »

^ I'm not suggesting that we should try to raise GDP so much that no cuts are necessary, that's ridiculous of course.

But I AM suggesting a combination of the two approaches. The government's current approach, which cuts the deficit but will end up also reducing GDP, won't get us anywhere in the long run. Eventually they will run out of cuts to make which don't literally kill economic activity. So we're going to need SOME increase in GDP no matter what.

Unfortunately its not that easy as you think

GDP = private consumption + gross investment + government spending + (exports − imports)


ok so lets see:

* exports - not easy to raise when the country is uncompetitive, we do thankfully still have a positive balance of trade, tho' short of exports increasing by and order of magnitude...

* government spending - to raise this need to borrow from abroad (which will have to be paid back at later stage) since our tax system cant collect enough to cover the expenditure (which is still at tiger bubble levels) last i checked we are getting loan shark rates...

* gross investment - with all the talk of burning investors... we could lower taxes to attract companies to invest in Ireland, but the socialist lefties wouldnt have any of this, if anything their plans would kill any investment from outside

* private consumption - well we were told to save less and spend more by our glorious leaders tho i dont know how we can spend more privately, considering we have a very indebted population too



so yeh there ya go

WalterMitty

hatrickpatrick wrote: »

^ I'm not suggesting that we should try to raise GDP so much that no cuts are necessary, that's ridiculous of course.

But I AM suggesting a combination of the two approaches. The government's current approach, which cuts the deficit but will end up also reducing GDP, won't get us anywhere in the long run. Eventually they will run out of cuts to make which don't literally kill economic activity. So we're going to need SOME increase in GDP no matter what.

Its not so easy to grow GDP now compared to the 90s and early 2000s. We were coming from low base in 90s and had very low costs for a developed country. Now we have grown big but less competitive,less nimble ,less dynamic. Our competitors in Eastern Europe and Asia are not far behind(if behind at all) in attractiveness to investors . The markets we serve here are mature and not gonna grow as much as BRIC economies. The internet and communications revolution means people can work /run businesses from anywhere in world and dont need to be in high cost countries like Ireland. Knowledge is also much easier available to anyone in world with internet connection.
Basically i dont see our GDP growing hugely in coming decade. 'Maybe a couple % a year over ten years, barely enough to meet increases in population . Fairly grim prospects im afraid.

laserlad2010

ei.sdraob wrote: »

* exports - not easy to raise when the country is uncompetitive, we do thankfully still have a positive balance of trade, tho' short of exports increasing by and order of magnitude...

* government spending - to raise this need to borrow from abroad (which will have to be paid back at later stage) since our tax system cant collect enough to cover the expenditure (which is still at tiger bubble levels) last i checked we are getting loan shark rates...

* gross investment - with all the talk of burning investors... we could lower taxes to attract companies to invest in Ireland, but the socialist lefties wouldnt have any of this, if anything their plans would kill any investment from outside

Exports are up this year on last year.

Government spending is still held up by the fact that noone will wake up and accept the fact that wages HAVE TO BE CUT. Anyone who says differently has their head in the bloody sand!

Investment? Do you want to know what the EU are putting pressure on us to do? Raise the corporate tax up to EU-wide levels. If some of the posters on these forums get their way, the EU is going to step in and take control. Say goodbye to foreign investment then, boyo.

But I'd say that reduction is going to come about by a mixture of trying to raise the income and lower the deficit