Where do the surpluses go?

mike65

During the boom the current account was always in surplus sometims to the tune over over a billion, being a Joe Ordinare I assumed the supluss would accru yet in no time with the current account in deficit the cupboard was declared empty. So where did it go? Did it ever built up or was it all sunk into the NTMA pension fund/blown in the following years spending or both?

antoinolachtnai

I think you underestimate the scale of the downturn.

revenues had built up to around 60bn, and spending had gone to the same. Now revenues are set to drop to 40bn. So there's a shortfall of 20 bn, and we've so far cut costs by less than 2 bn. So any surpluses that are lying around, including the pension fund are going to get absorbed pretty quickly.

mike65

Cheers, so they spent it.

antoinolachtnai

To make a long story short, yes.

nesf

mike65 wrote: »

During the boom the current account was always in surplus sometims to the tune over over a billion, being a Joe Ordinare I assumed the supluss would accru yet in no time with the current account in deficit the cupboard was declared empty. So where did it go? Did it ever built up or was it all sunk into the NTMA pension fund/blown in the following years spending or both?

A fair bit of it was used to pay down the debt we'd built up in the 70s and 80s under McCreevey I think. (memory could be playing tricks on me though)

blast05

No, damn all of it went to pay off the debt. We just stopped borrowing and as our GDP rose, the percentage of debt to GDP dropped.

I look back and wonder at what might have been. If we had government with mentality of a Swedish or Norwegian one running the country over the last 12 years, we would probably have a soverign wealth fund of 30 odd billion - yes, i plucked those figures out of the sky but oh what waste we have seen. Take the Norwegians, they have very high taxes compared to Ireland despite having a soverign wealth fund (investment of current account surplus) worth ~€81K per head of population. Could you imagine Ireland keeping our current modest tax levels if we had a soverign wealth fund of around 320 billion (taking 4 million people at 80K per head)...

P. Breathnach

blast05 wrote: »

No, damn all of it went to pay off the debt. We just stopped borrowing and as our GDP rose, the percentage of debt to GDP dropped...

That is more or less true. I was surprised to learn that, as I had presumed that there was some consistent effort to reduce the debt. I suppose that on the occasions when it was reduced, it was so loudly trumpeted that perceptions were distorted.
1990: National Debt was €31,849m (87.7% of GDP)
2006: National Debt was €35,917 (20.4% of GDP)
http://www.cso.ie/releasespublications/documents/statisticalyearbook/2007/Chapter%2010%20Public%20Finance%20and...pdf (page 173).

I haven't checked where than National Pension Reserve Fund fits into the picture; perhaps it might be regarded as an offset.

nesf

Cheers, thanks for the info.

ionix5891

blast05 wrote: »

No, damn all of it went to pay off the debt. We just stopped borrowing and as our GDP rose, the percentage of debt to GDP dropped.

I look back and wonder at what might have been. If we had government with mentality of a Swedish or Norwegian one running the country over the last 12 years, we would probably have a soverign wealth fund of 30 odd billion - yes, i plucked those figures out of the sky but oh what waste we have seen. Take the Norwegians, they have very high taxes compared to Ireland despite having a soverign wealth fund (investment of current account surplus) worth ~€81K per head of population. Could you imagine Ireland keeping our current modest tax levels if we had a soverign wealth fund of around 320 billion (taking 4 million people at 80K per head)...

norway is not doing too well either

see Norway pension fund loses $92bn

The_Minister

blast05 wrote: »

I look back and wonder at what might have been. If we had government with mentality of a Swedish or Norwegian one running the country over the last 12 years, we would probably have a soverign wealth fund of 30 odd billion

In fairness, McCreevy tried to put a tiny amount aside for the pensions, and had to fight tooth and nail just for that. The entire Labour party opposed it and voted against it.

antoinolachtnai

The problem is that a lot of this money was/would have been put into investments that tanked in value.

I think the key (then and now) is to put money into public services that are great value for money. Efficiency is the key. Back then, efficiency would have meant getting the same amount of current expenditure to deliver a far greater amount of services. In our current situation, efficiency is going to mean getting slightly less services for a lower cost and without much investment, which is not a great way to have to go about it.

daveirl

This post has been deleted.

silverharp

P. Breathnach wrote: »

That is more or less true. I was surprised to learn that, as I had presumed that there was some consistent effort to reduce the debt. I suppose that on the occasions when it was reduced, it was so loudly trumpeted that perceptions were distorted.
1990: National Debt was €31,849m (87.7% of GDP)
2006: National Debt was €35,917 (20.4% of GDP)
http://www.cso.ie/releasespublications/documents/statisticalyearbook/2007/Chapter%2010%20Public%20Finance%20and...pdf (page 173).

I haven't checked where than National Pension Reserve Fund fits into the picture; perhaps it might be regarded as an offset.

I remember raising this a few years back on some thread or other that they should pay off the National Debt given the one off nature of much of the revenue, the general response was that ist was "bad" for the economy for some reason or another.:rolleyes:
On the flip side the gov will probably find a way of running the debts up until the market says no , so might not have made much difference .

nesf

silverharp wrote: »

I remember raising this a few years back on some thread or other that they should pay off the National Debt given the one off nature of much of the revenue, the general response was that ist was "bad" for the economy for some reason or another.:rolleyes:

It's more why spend several billion paying down debt when we could spend those billions helping people and so on.

P. Breathnach

nesf wrote: »

It's more why spend several billion paying down debt when we could spend those billions helping people and so on.

Some of the "helping" was cutting taxes on income. Or maybe that was the "so on".

nesf

P. Breathnach wrote: »

Some of the "helping" was cutting taxes on income. Or maybe that was the "so on".

FF could manage both, increase spending in Health etc and cut your tax bill. A very rare combination and something we're not likely to see a party able to do again for a very long time, if ever.

P. Breathnach

nesf wrote: »

FF could manage both, increase spending in Health etc and cut your tax bill. A very rare combination and something we're not likely to see a party able to do again for a very long time, if ever.

The cut our tax bill (that is, Herself's and mine), but that is in large part because of our circumstances. We didn't buy a house in the past few years, and we don't spend much on cars or tobacco. People in different circumstance paid more than they might have ten years ago. Over time, taxes as a percentage of GNP changed only a little, from 36.7 in 1995 to 36.2 in 2005 ( http://www.finfacts.ie/irishfinancenews/article_1012687.shtml ). The biggest change in tax was its incidence, with taxes on income being reduced, while other taxes increased more or less to compensate.

Total revenue increased because of economic growth. Total expenditure increased because successive Ministers for Finance saw little need to keep a lid on spending. The increase in spending was approximately in line with economic growth. It was a problem that much of that growth was illusory, being no more than price distortion linked with the property bubble.

If we could factor out the property bubble, the story would be quite different. In a sense, that is happening now.

blast05

The increase in spending was approximately in line with economic growth

I was of the understanding that spending grew at greater than 10% for all bar 1 year of this decade ?

Digi_Tilmitt

nesf wrote: »

It's more why spend several billion paying down debt when we could spend those billions helping people and so on.

But every cent used to pay off the national debt would mean less tax revenue being wasted on interest payments every year, which means more money to spend "helping people" in the long run.

But arguments such as that were a lost cause on people who can't defer gratification.

nesf

Digi_Tilmitt wrote: »

But every cent used to pay off the national debt would mean less tax revenue being wasted on interest payments every year, which means more money to spend "helping people" in the long run.

But arguments such as that were a lost cause on people who can't defer gratification.

Indeed, and it would avoid putting the burden on our children, but it's hard to convince the public to do this.

thebman

nesf wrote: »

Indeed, and it would avoid putting the burden on our children, but it's hard to convince the public to do this.

I don't know if it is that hard to convince the government. I think most people like to hear we are reducing our national debt.

It is only when we get into a situation where some parties are promising them and others aren't that the problem arises that the person paying off the national debt needs to make their case better than the other guy.

If the debt reduction person ran on the platform that he/she will pay off national debt to reduce interest payments and this decrease will be then passed on as a tax cut or invested in better infrastructure that people would be okay with it.

I think politicians have never even tried to run on a proper platform of infrastructure investment over tax cuts in this country. None of the main parties seem to run on this basis anyway. Its always tax cuts, never investment in our future. I think Irish people would have a warm reception for investment in our future over tax cuts.

antoinolachtnai

It isn't really a question of debt being good or bad.

If we invest the money in things that are of lasting, tangible value, then debt isn't a bad thing. We are building a better world for our children. They have to share the cost, but they also get the benefit.

The problem (or part of the problem) was that we were investing in stuff that just wasn't worth it. We carried out projects that had and are having little enough benefit. We spent money on raising salaries and standards of living to a level that wasn't really sustainable.

It is easy to complain about the public sector, but the private sector did it too, in the form of overvalued property. The whole thing fed on itself. Higher salaries in the public sector drove (and were driven by) higher property prices. This also drove up private sector earnings.

It's easy to see and say all this in retrospect of course.

It's not all bad. We also built a lot of good, important things. The property boom has (generally speaking) resulted in a great improvement in the quality of housing.

So now we are somewhat over-indebted. But we can get out of it, we just have to work a bit harder and a lot smarter.

Diarmuid

P. Breathnach wrote: »

That is more or less true. I was surprised to learn that, as I had presumed that there was some consistent effort to reduce the debt. I suppose that on the occasions when it was reduced, it was so loudly trumpeted that perceptions were distorted.
1990: National Debt was €31,849m (87.7% of GDP)
2006: National Debt was €35,917 (20.4% of GDP)
http://www.cso.ie/releasespublications/documents/statisticalyearbook/2007/Chapter%2010%20Public%20Finance%20and...pdf (page 173).

I haven't checked where than National Pension Reserve Fund fits into the picture; perhaps it might be regarded as an offset.

Is that €31b in 1990€ or 2006€. Because if it's 1990 terms, it would be around €55b adjusted for 2.5% inflation.

P. Breathnach

Diarmuid wrote: »

Is that €31b in 1990€ or 2006€. Because if it's 1990 terms, it would be around €55b adjusted for 2.5% inflation.

It's not made obviously clear in the document. When I was posting the link, I thought about checking on that point, and then I thought that it showed nothing useful.

Yes, I think the borrowing is expressed in money terms, unadjusted for inflation. That shows only that any reduction in debt is due to the effects of inflation, not to government efforts to bring it down.

mike65

I was around then so I can tell you the debt figure for 1990 is 31 billion in 1990 values (about 24.5 billion punts at the time). The servicing payments were about 2 billion a year by the late 80s/early 90s if I remember rightly.

antoinolachtnai

Yep. Money was a lot more expensive then and we had a lot less capacity for the debt.

The problem isn't the amount of debt (as yet). The problem is that the money is going on current expenditure. We aren't really going to be building anything new for the next few years.

P. Breathnach

antoinolachtnai wrote: »

... The problem isn't the amount of debt (as yet). The problem is that the money is going on current expenditure. We aren't really going to be building anything new for the next few years.

That's true.

Page 172 on the document I linked shows a period of eleven years (1996-2006) with large, indeed huge, current budget surpluses which were used to underpin capital budget investment.

The looming problem is not that expenditure has jumped. It's really that government revenue has collapsed, and has fallen proportionately more than the lessening of economic activity. In recent years, taxes as a percentage of GDP have been very low in comparison with economies at a similar level of development (still lowish if measured against GNP, but not so much so). Without measures like the income levy, the public service pension levy, and whatever is coming in April, our tax incidence would become something of a joke.

I'm not making a case against expenditure cuts; I'm making the case that we also need a tax base that works. We can see the result of having one that was essentially predicated on a bubble.