The damn budget

tapo

The dreaded budget is now only a matter of weeks away. For those of us unemployed or on low incomes it is an increasingly worrying time.

It seems that there will be cuts across the board, children’s allowance may be means tested? Unemployment assistance may be reduced? The public sector wage bill will need to be trimmed?
We all know that there is a huge deficit in the annual national accounts and some and maybe all of us will have to pay.
We may feel that these problems were not caused by the likes of you and me but unfortunately it will be up to us to foot the bill.

For me this time of year is all about survival. If I tightened my belt anymore I would suffocate, so a proposed cut in children’s allowance would be a disaster.

I know some wealthy people who use their children’s allowance payment to get their hair done.
We use ours to pay the electricity bill. I should be putting it away for my son’s future, but the here and the now is just more important.

As a family we will find it impossible to accept any further cuts to either wages or benefits

These difficult times may just allow us to think about what is really important in our lives. For too long we as a nation have been far too concerned with chasing the money, driving the brand new car, living in the large house, buying the biggest television and going on the most expensive holidays, but did this lifestyle really make us any happier?

Maybe now is the time to reassess and start chasing the truly important things in life like health, happiness, strong family and communities and friendship.
There have been times in our history when money was not all that important for most of us, and that was not that long ago either.

The budget will be released just before Christmas and I am sure that a wave of anger will consume the country at this time. Everyone will be looking at how the budget affects him or her personally. This is only a natural reaction, but I would ask that people try to look out for each other at this time. Check that friends and neighbours are ok. Speak to your families. The love and support they can give us during these difficult times can be priceless.
Lets support our communities and take extra care of the vulnerable.

The Celtic Tiger may be long gone, but the Irish spirit of care and community is still there. It may have been somewhat dormant during the boom times, but it is now up to each and every one of us to rise to the occasion.

We cannot allow the budget and all that it brings with it to destroy our enjoyment of Christmas. I may need to reduce my spending even further. Go out less. Buy cheaper presents? But it is still an occasion that I welcome and enjoy

Christmas is the “Season of Giving” Will you be giving this Festive Season?

mikemac

Who remembers when there were massive power cuts at Christmas, 1998 I believe.

You would have seen a lot of that OP, people visiting elderly people to check they were ok and to invite them around, no TV or computers, just people around talking in the house.

Dannyboy83

How much is children's allowance?
And what is the proposed cut?

Zynks

Thanks Tapo, good post. I think we should all keep things in perspective and it is good to get a sensible reminder every once in a while

Piriz

hey Tapo, a very decent perspective you've shared with us!
thanks

tapo

We can sit and mope around or we can get on with it. I spent 6 months of 2009 on the dole and am now employed in a job that actually pays less than the dole , but I am a happier person for working. You just have to look forward , that is not to say that I would not string up the idiots who helped to cause this mess

nesf

Dannyboy83 wrote: »

How much is children's allowance?
And what is the proposed cut?

There are no details yet. My guess (and it is only that) is that we could see a flat cut in the child allowance rate combined with some kind of payment introduced for low income families with children thus removing the headache that making it taxable would be. The Government could then go for a fairly large cut but protect the most vulnerable making it both better than a flat cut alone and easier to sell to the public. It would be hard on those just over the cut-off point but no matter what level they choose they're will be some people worse off so it's a catch 22 situation.

Diarmuid

nesf wrote: »

protect the most vulnerable

Can we stop using this phrase? At this stage it's totally meaningless. It's being bandied about by practically every vested interested group. That or we define exactly what the most vulnerable is.

irish_bob

Diarmuid wrote: »

Can we stop using this phrase? At this stage it's totally meaningless. It's being bandied about by practically every vested interested group. That or we define exactly what the most vulnerable is.

+1

we hear alot about how awfull the dropping of the xmas bonus is , fergus ( no child should have to make do with hand me down school uniforms ) finlay said on radio the other night that if its not reinstated , people will go hungary this christmas , in actual fact , the rescession is a bit of a boom for those on wellfare , with deflation officially running at 6% , they are up 4% on last year

leninbenjamin

tapo wrote: »

We can sit and mope around or we can get on with it.

spot on.

As a nation we're spending money we don't have (14% GDP?). Welfare and public sector pay make up the largest proportions of this (something like 65-70%?). The cost of living has fallen 6% in the year to Oct. I think it's fallen over 10% since the construction sector started to contract in 07.

Increasing the tax take is necessary but will only do so much; doubling it wouldn't even cover a quarter of the current deficit afaik. Productivity and efficiency increases from the other areas of the public sector are necessary, but again they will only go so far without crippling essential services. The only thing that could make a difference is substantial cuts to both welfare and pay.

We need cuts, we need them now. Get over it!

nesf

Diarmuid wrote: »

Can we stop using this phrase? At this stage it's totally meaningless. It's being bandied about by practically every vested interested group. That or we define exactly what the most vulnerable is.

Grand, I agree tis at best a catchphrase. The general thinking seems to be that those on low incomes are the ones who can least afford a cut in child allowance (though I think this is too simplistic an approach to take). They are the "most vulnerable" in such thinking, though personally I'm not convinced that just looking at someone's income is the best way to judge such things as "being able to afford" a cut. Renting vs Mortgages etc etc.

dvpower

Dannyboy83 wrote: »

How much is children's allowance?
And what is the proposed cut?

Briefly saw something in this morning's Indo suggesting Cowen was mooting a 11% cut. I'd be delighted with that.

Diarmuid wrote: »

Can we stop using this phrase? At this stage it's totally meaningless. It's being bandied about by practically every vested interested group. That or we define exactly what the most vulnerable is.

Me.

abouttobebanned

YOu'd be delighted with an 11% cut of the children's allowance?

dvpower

abouttobebanned wrote: »

YOu'd be delighted with an 11% cut of the children's allowance?

Yes. I'm a recipient of CBH (2 kids). An 11% cut would be far lower than what I'm expecting. I'd be expecting it to be taxed at the higher rate.

OMD

irish_bob wrote: »

+1

the rescession is a bit of a boom for those on wellfare , with deflation officially running at 6% , they are up 4% on last year

I am not sure I would call it a boom but they are up more than 4% in real terms. Most social welfare was increased 3.5% last year, then reduced 2% in effect by abolishing the Christmas bonus. That's 1.5% gain and when allowed against inflation it means they are really 8% better off in real terms.

97i9y3941

i dont have kids so i have to ask people,why coundnt they means test it?,why the tier system?,are they been dictated to again by well off/property developers who are taking it at the moment that means testing it would be unfair?

nesf

Fred83 wrote: »

i dont have kids so i have to ask people,why coundnt they means test it?,why the tier system?,are they been dictated to again by well off/property developers who are taking it at the moment that means testing it would be unfair?

You'd have to create a different means test threshold for each extra kid a family has since you don't get the same amount per child necessarily.

Means testing is expensive and very very hard to implement if people are used to something as a basic "right". It would be expensive to implement and would annoy a lot of people. Similar to taxing child benefit, it works well on paper but once you sit down and work out what'd cost to implement it doesn't look as attractive.

97i9y3941

yes but i have a feeling,if they bring in the tier system,it could be exploited again like the welfare/grant system,some of the well off could hide their true income by taking it off the books/hiding it through assets etc

nesf

Fred83 wrote: »

yes but i have a feeling,if they bring in the tier system,it could be exploited again like the welfare/grant system,some of the well off could hide their true income by taking it off the books/hiding it through assets etc

Well, see that gets us into the very tricky of question of what wealth actually is and how we should measure it for the purposes of taxation.

A: Earns 50K a year and has put aside 50K in savings

B: Earns 50K a year but spent it all and has no savings and goes month to month using overdrafts.

Should A & B pay the same amount of tax this year? Should A be punished for taking money they already paid tax on and saving it? Wouldn't taxing it be a form of dual taxation? Etc.

Then, if we tax A for their savings we encourage all A's to be more like B. This means less capital in banks to be lent out to companies who provide the jobs that give A & B their 50K a year. Etc.

OMD

nesf wrote: »

Well, see that gets us into the very tricky of question of what wealth actually is and how we should measure it for the purposes of taxation.

A: Earns 50K a year and has put aside 50K in savings

B: Earns 50K a year but spent it all and has no savings and goes month to month using overdrafts.

Should A & B pay the same amount of tax this year? Should A be punished for taking money they already paid tax on and saving it? Wouldn't taxing it be a form of dual taxation? Etc.

Then, if we tax A for their savings we encourage all A's to be more like B. This means less capital in banks to be lent out to companies who provide the jobs that give A & B their 50K a year. Etc.

I take your point Nesf but at the moment don't we want more Bs and less As. Get people saving less and spending more.

nesf

OMD wrote: »

I take your point Nesf but at the moment don't we want more Bs and less As. Get people saving less and spending more.

Um, but if people start pulling out savings and spending them en masse this will reduce the amount of capital available to banks which means they'll have even more trouble getting credit moving again.

It's the whole paradox of thrift thing really.

Edit: I should expand on that.

Paradox in this context just means that thrift can be a good virtue for the individual but a bad one if everyone follows it. Now I'll illustrate it with a really simplistic model that has loads of problems with it but it's the general idea I'm trying to get across rather than an accurate description of how economies work.

If everyone saves more then there is less spent by consumers in the economy. This means less income for companies who pay those people's wages. Which means companies might need to downsize and some people lose their jobs. Thrift while good for the individual (i.e. they're more financially secure) can result (in this very simple "model") in people losing jobs. In reality everyone doesn't do the same thing so generally the money the B's put aside is used to fund for A's overdraft by the bank so B saving still means more spending in the economy. But in depressions what's important is that we see what economists would call a shock to aggregate demand. Which in layman's terms means everyone is spending less, be it companies or individuals. Since this is an edit I'll continue this in a separate post...

nesf

What truly marks a depression is its breath of effect. It's not just a sectional downturn with just the building trade gone down but everyone spending less regardless of whether they are in safe jobs or not. It's a facet of human nature that there are tipping points at which we see mass behaviour changes and these changes are part of the vicious circle and cure of depressions.

We'll only come out of this depression when people start spending again. People will only start spending again when they think the depression is ending and the chance of a pay cut or them losing their job has lessened. This is the problem faced by Governments and honestly there's not a whole lot that can be done baring losing the economy and trying to get credit flowing again (and even doing this has its problems!).


The thing is this budget will be deflationary but people's spending over the past three to four months has probably already accounted for most of the deflationary effect because we're all expecting a very tough budget. There is actually no way for the Government to not give a deflationary budget and talk of stimulus packages is nonsense with an economy in such fiscal straights. We won't truly come out of this until the specter of fiscal collapse is gone and that means a balanced budget which means short term pain but doing nothing and allowing the deficit to grow larger would have an even worse effect on the economy essentially forcing even bigger cuts in a year or two. If we don't act now and stem the flow of spending we are just going to make the whole situation worse. We are facing one of the worst and most sudden turnarounds in budgetary conditions ever seen in percentage terms so this is a very bitter pill to take but in layman's terms we're back on 2003 wages but we're still spending Government money like the boom was still on. That's not sustainable and we need to accept that and bite the bullet on this one.

Zynks

Sorry guys, but the original intent of Tapo's message seems to have been missed:

tapo wrote: »

Maybe now is the time to reassess and start chasing the truly important things in life like health, happiness, strong family and communities and friendship.
There have been times in our history when money was not all that important for most of us, and that was not that long ago either.

<snip>
......Check that friends and neighbours are ok. Speak to your families. The love and support they can give us during these difficult times can be priceless.
Lets support our communities and take extra care of the vulnerable.

The Celtic Tiger may be long gone, but the Irish spirit of care and community is still there. It may have been somewhat dormant during the boom times, but it is now up to each and every one of us to rise to the occasion.

We cannot allow the budget and all that it brings with it to destroy our enjoyment of Christmas. I may need to reduce my spending even further. Go out less. Buy cheaper presents? But it is still an occasion that I welcome and enjoy

Christmas is the “Season of Giving” Will you be giving this Festive Season?

His point is about the stuff the REALLY matters after all. It is about keeping things in perspective.

When he refers to 'the vulnerable' it doesn't seem to be referring necessarily to financially vulnerable, but physically and emotionally.

He is talking about human values and it would be nice to see this thread discussing that for a change.

Peace.

dvpower

Zynks wrote: »

Sorry guys, but the original intent of Tapo's message seems to have been missed:

...
...

He is talking about human values and it would be nice to see this thread discussing that for a change.

tapo wrote: »

The dreaded budget is now only a matter of weeks away. For those of us unemployed or on low incomes it is an increasingly worrying time.

It seems that there will be cuts across the board, children’s allowance may be means tested? Unemployment assistance may be reduced? The public sector wage bill will need to be trimmed?
We all know that there is a huge deficit in the annual national accounts and some and maybe all of us will have to pay.
We may feel that these problems were not caused by the likes of you and me but unfortunately it will be up to us to foot the bill.

For me this time of year is all about survival. If I tightened my belt anymore I would suffocate, so a proposed cut in children’s allowance would be a disaster.

I know some wealthy people who use their children’s allowance payment to get their hair done.
We use ours to pay the electricity bill. I should be putting it away for my son’s future, but the here and the now is just more important.

As a family we will find it impossible to accept any further cuts to either wages or benefits

There was a lot in that post about money too.

Prosperity.

nesf

Zynks wrote: »

Sorry guys, but the original intent of Tapo's message seems to have been missed:



His point is about the stuff the REALLY matters after all. It is about keeping things in perspective.

When he refers to 'the vulnerable' it doesn't seem to be referring necessarily to financially vulnerable, but physically and emotionally.

He is talking about human values and it would be nice to see this thread discussing that for a change.

Peace.

Yeah but if we can't fix our deficit problem then things are going to get worse physically and emotionally for everyone. It'll prolong the depression we are in and create even more uncertainty about the economy which translates into very real anxiety about losing one's job or finding a new one to get off the dole.

Dannyboy83

nesf wrote: »

What truly marks a depression is its breath of effect. It's not just a sectional downturn with just the building trade gone down but everyone spending less regardless of whether they are in safe jobs or not. It's a facet of human nature that there are tipping points at which we see mass behaviour changes and these changes are part of the vicious circle and cure of depressions.

We'll only come out of this depression when people start spending again. People will only start spending again when they think the depression is ending and the chance of a pay cut or them losing their job has lessened. This is the problem faced by Governments and honestly there's not a whole lot that can be done baring losing the economy and trying to get credit flowing again (and even doing this has its problems!).


The thing is this budget will be deflationary but people's spending over the past three to four months has probably already accounted for most of the deflationary effect because we're all expecting a very tough budget. There is actually no way for the Government to not give a deflationary budget and talk of stimulus packages is nonsense with an economy in such fiscal straights. We won't truly come out of this until the specter of fiscal collapse is gone and that means a balanced budget which means short term pain but doing nothing and allowing the deficit to grow larger would have an even worse effect on the economy essentially forcing even bigger cuts in a year or two. If we don't act now and stem the flow of spending we are just going to make the whole situation worse. We are facing one of the worst and most sudden turnarounds in budgetary conditions ever seen in percentage terms so this is a very bitter pill to take but in layman's terms we're back on 2003 wages but we're still spending Government money like the boom was still on. That's not sustainable and we need to accept that and bite the bullet on this one.

Very informative posts, thanks.

a) Why do you think the government postponed the short and sharp pain (preventing recovery and indeed the debt itself) for so long?
Was it just the usual political inertia, or was their some enlightened philosophy behind it?

b) What would you think of using a 'negative income tax' type of system for the next 5 years? I know of a company where this is being used (they got grants from Enterprise Ireland under 'employment subsidy' and they have reinvested a lot of their profits and announced 30 new jobs recently which will in effect double their workforce.
It seems far more sensible than having 30 people sitting on the dole doing nothing and will surely aid an export led recovery.
What are the obstacles to using this in our situation?

nesf

Dannyboy83 wrote: »

a) Why do you think the government postponed the short and sharp pain (preventing recovery and indeed the debt itself) for so long?
Was it just the usual political inertia, or was their some enlightened philosophy behind it?

Political inertia combined with uncertainty about how bad 2009 tax returns were going to be. I think they were expecting 2005 levels they got 2003 levels of tax in.

Generally Governments will always be playing catch-up because they have to be sure there is a depression going on before it's politically justifiable to cut spending by a lot.

Dannyboy83 wrote: »

b) What would you think of using a 'negative income tax' type of system for the next 5 years? I know of a company where this is being used (they got grants from Enterprise Ireland under 'employment subsidy' and they have reinvested a lot of their profits and announced 30 new jobs recently which will in effect double their workforce.
It seems far more sensible than having 30 people sitting on the dole doing nothing and will surely aid an export led recovery.
What are the obstacles to using this in our situation?

That's effectively what stimulus spending is about. The problem is we'll be short something like 27 billion Euro just to cover our current level of spending. If the budget was somewhat balanced we could do it but with the fiscal situation it's a non-starter. Would it make sense for that company to borrow the money to hire those 30 extra people you think? Consider it that way.