Should the full 9 billion adjustment be done in december ?

Sand

Regardless of the rights or wrongs of it (and it is right to cut the deficit ASAP...when ASAP is at least 6 years into an economic depression) its impossible to complete the full 9 billion adjustment in december due to all the political promises *not* to deal with the decit.

- Public sector wages cant be touched.
- Social welfare cant be touched.
- Taxes cant be touched.

You cant reduce the deficit without touching those: the reality is that Official Ireland is devoted to Micawberian economics. They want to delay cuts and put everything out onto the long finger because they truly, deeply hope that something will turn up so that they never have to make those cuts. They'll come up with all sorts of pathetic rationalizations for it (and plenty of them appearing in this thread) - but the underlying reality is turkeys don't vote for Christmas.

number66

Sand wrote: »

Regardless of the rights or wrongs of it (and it is right to cut the deficit ASAP...when ASAP is at least 6 years into an economic depression) its impossible to complete the full 9 billion adjustment in december due to all the political promises *not* to deal with the decit.

- Public sector wages cant be touched.
- Social welfare cant be touched.
- Taxes cant be touched.

You cant reduce the deficit without touching those: the reality is that Official Ireland is devoted to Micawberian economics. They want to delay cuts and put everything out onto the long finger because they truly, deeply hope that something will turn up so that they never have to make those cuts. They'll come up with all sorts of pathetic rationalizations for it (and plenty of them appearing in this thread) - but the underlying reality is turkeys don't vote for Christmas.

We need better politicians and smarter voters. Maybe then we could get proper structural reform that might just save us from the next disaster.

kippy

number66 wrote: »

We need better politicians and smarter voters. Maybe then we could get proper structural reform that might just save us from the next disaster.

Turkeys don't vote for Christmas.
Ultimately every voter in the country hopes that something will happen to bring down the deficit faster than it currently is ensuring less "pain" is felt by all individuals.

kippy

GCU Flexible Demeanour wrote: »

No, I'm suggesting that borrowing €9 billion will effect the majority of the population for a lot longer. I'd expect most would find their living standards would be hit. They been hit already - but we're in this mug's game of borrowing to pretend that hasn't happened. Can we take it all at once? I don't know, but (as I've said) so much of our consumer expenditure goes on imports that I don't expect the damage to be as great as some would fear. In any event, I'm mostly agreeing with the Fiscal Council that the present rate of correction should be accelerated.

I'm not suggesting that these savings would only effect 300,000. I actually haven't said that at all. What I said was the mortgage issue - which is so frequently hauled out to attempt to frustrate necessary change - potentially only impacts a couple of hundred thousand households. Most households have no mortgage, and many more have modest mortgages, and there's no particular connection between preserving State payments and mortgages. So be very clear about what I'm saying - I'm simply eliminating one of the arguments employed to cloud the issue. We don't need to protect pensions to avoid mortgage defaults, for instance.

We've so little chaos at present, we could probably afford some. I'd suggest the lack of chaos is a warning - because it suggests that few have really experienced any difficult adjustments yet.

I'd disagree. The magnitude of cuts/tax rises required to bring about 9 billion in savings in one budget is just colossal.
It would literally effect generations, and for what?

GCU Flexible Demeanour

kippy wrote: »

I'd disagree. The magnitude of cuts/tax rises required to bring about 9 billion in savings in one budget is just colossal.
It would literally effect generations, and for what?

It's the debt that we're accumulating that will effect generations. We're spending their money, and we're spending on stuff that does nothing to improve our capacity to repay debt. A lot of the spending is ephemeral and hard to justify. Consider the blanket entitlement to Children's Allowance. Anyone I know is saving their Childrens Allowance at 2% in Rabobank; this is money that the Government is borrowing at 6% so it can pay it to them. It's complete nonsense.

Our current policy is to postpone short-term pain at considerable expense to future generations.

later12

I can't even think of a devil's advocate's position to favour the OP. There is just no vaguely credible reason for doing this.

Lets get a few things clear; our notional cost of borrowing is currently below the average cost assumed in the Irish-Troika crisis programme, now down to a two year low; further, last Thursday the NTMA sold €500 million in a T-bond auction that had a 3.03 bid to cover ratio and a yield of 0.7%. And no, that wasn't even the ECB buying those bonds.

But the ECB are going to be buying Irish bonds on the secondary market, a move which although it will not work for Spain and Italy in the long term, can actually work quite excellently for Ireland and artificially lower our cost of borrowing, pretty much as effectively as if the ECB were equipped to buy the paper directly; proving quite reassuringly that there are some benefits of being a small country.

Whereas the aggressive, upfront consolidation would inevitably only be temporary, a la The Paradox of Thrift, and would only serve to worsen our debt dynamics by eroding national income, consequently eroding the sustainability of our General Government Debt even further.

Can those who are suggesting we take this route of upfront consolidation actually substantiate their claims with something other than vague rhetoric? I'm tempted to ask for evidence, but reason will do.

GCU Flexible Demeanour

later12 wrote: »

Can those who are suggesting we take this route of upfront consolidation actually substantiate their claims with something other than vague rhetoric? I'm tempted to ask for evidence, but reason will do.

Well, right back at you.

Firstly, what makes the Troika programme the final word on what's necessary? You'd get the impression that the overriding objective is to borrow ourselves absolutely at the max.

I'd suggest we should see the Troika limits as the absolute red line that we should avoid at all costs. Can you provide a reason why we should see it as our national target?

As to the paradox of thrift, I've already pointed out that the heavy import component of our consumer expenditure means that much of the impact of the "trift" is felt by the people we import from, not by other Irish people.

Do you need substantiation of the heavy import component in our expenditure? I'd have thought that would be pretty well known, particularly to someone who purports to have some knowledge of the topic.

Can I also challenge this idea of "upfront" consolidation. If we're borrowing, it's backloading. Reducing the amount of borrowing is not "frontloading". It's reducing the "backloading".

later12

GCU Flexible Demeanour wrote: »

Well, right back at you.

Firstly, what makes the Troika programme the final word on what's necessary?

Nope, you're not going to draw me into this discussion with more empty, vague rhetoric I'm afraid.

You have a burden of proof to be getting on with.

I have laid down the principles relating to adherence to the current programme. That is to say, ongoing upward progress in Irish bond values, and now the emergence of OMT policy which should be enough to buoy sustainable Irish bond values into the future, whatever its dubious value to other peripheral stability.

In short, Ireland is in or around where it is reasonable to be at this time. The programme is broadly delivering what it is setting out to deliver.

Therefore, the responsibility now shifts to you to demonstrate why the Government ought to deviate away from that path, ideally using something more akin to economics than emotion. Well?

Cian92

murphaph wrote: »

As a non-resident I get no tax reliefs or credits in Ireland, so I pay at least 22% of my Irish taxable income straight to revenue (never mind charges like NPPR, Household charge, PRTB re-registration and the soon to be property tax....) and this is where it goes. This is why it's so hard to listen to the PS folks on here who tell us there's no more fat to cut in government expenditure.

I don't think the fact that you aren't resident in the country and thus have to pay a higher level of tax relevant to the pay level of those in the Public Service. You are not living in the country for 50% of the year, why should you get tax credits? You are ordinarily resident someplace else, and it is there where you will receive tax credits.

GCU Flexible Demeanour

later12 wrote: »

Nope, you're not going to draw me into this discussion with more empty, vague rhetoric I'm afraid.

You have a burden of proof to be getting on with.

Where's the empty rhetoric? Who regards a statement like "the heavy import component of our consumer expenditure means that much of the impact of the "trift" is felt by the people we import from, not by other Irish people" as rhetoric?

However, I do note your sudden change from a request for "reason" to a request for "evidence", once challenged.

All I'm saying is I'd regard the empty, vague rhetoric of the Fiscal Council as reasonable evidence of what is pretty clear. Borrowing money and spending it on stuff that does nothing to increase our capacity to repay is a mug's game.

oppenheimer1

Cookie_Monster wrote: »

IT should have been done already for the most part. the last 2-3 budgets have all made trifling meaningless cuts around the edges of everything while effective dealing with hardly anything.

Not quite true, they made an enormous cut to the infrastructure budget, the cowards.

padser12345

We are on a natural course, for massive cut's unless debt forgiveness, so just be patient.....!

Scortho

oppenheimer1 wrote: »

Not quite true, they made an enormous cut to the infrastructure budget, the cowards.

Is This not one of the worst areas to cut though? Does improving infrastructure not make the country more attractive to invest in in the future?

On the deficit reduction, 9 billion could prove to be an awful shock to the economy.

However the economy seems to have survived the last budget fairly well. As in it hasnt gone into the economic equivelant of septic shock! Everyone was saying we'd be seeing a second budget which we haven't ...(yet)

I'd say they could get away with the 4.5 billion recommended by the Fiscal Advisary Committee. It also depends on how our growth turns out.

syklops

woodoo wrote: »

I had to check that i wasn't in After Hours there for a second.

I know what you mean. One of the worst points of the economic downturn IMO is that the entire population has turned into armchair economists. Now an armchair football manager I can just about stand, armchair economists are a step too far.

syklops

syklops wrote: »

I know what you mean. One of the worst points of the economic downturn IMO is that the entire population has turned into armchair economists. Now an armchair football manager I can just about stand, armchair economists are a step too far.

As long as they stay in their armchairs they won't do any harm.

It's only the internet, and all the guff typed by all the slackers on all the message boards around won't make a blind bit of difference.

Meanwhile the people in the real world who have real choices to make won't even consider the question put in this thread. Why? Because they have real choices to make in the real world, that's why. :rolleyes:

But everyone should feel free to carry on slavering away about fantasy politics and fantasy economics here in cartoon land, not that it particularly matters.

GCU Flexible Demeanour

padser12345 wrote: »

We are on a natural course, for massive cut's unless debt forgiveness, so just be patient.....!

That's about the most perceptive comment on the thread.

syklops wrote: »

I know what you mean. One of the worst points of the economic downturn IMO is that the entire population has turned into armchair economists. Now an armchair football manager I can just about stand, armchair economists are a step too far.

The appeal to expertise might work if economists had systemically identified and articulated the risks that brought us here. However, when the situation is simply that some posters are avoiding a plain point – that borrowed money must be repaid at some future date, and if spent on things that don’t increase future income this is a problem.

Sleepy

Deleted User wrote: »

As long as they stay in their armchairs they won't do any harm.

Unfortunately, those we tend to elect them in Ireland don't even have an armchair economists understanding of economics...

tayto lover

Where were all the so-called economics experts hiding between 2000 and 2007?
Anyone who was around then and who agreed on what we were doing or who stayed silent should not expect to be listened to now. So I have no time for the Fiscal Council or their views.

sarumite

tayto lover wrote: »

Where were all the so-called economics experts hiding between 2000 and 2007?
Anyone who was around then and who agreed on what we were doing or who stayed silent should not expect to be listened to now. So I have no time for the Fiscal Council or their views.

They were only established in 2011 so not really sure what you mean by 2000-2007?

Godge

GCU Flexible Demeanour wrote: »

That's about the most perceptive comment on the thread.The appeal to expertise might work if economists had systemically identified and articulated the risks that brought us here. However, when the situation is simply that some posters are avoiding a plain point – that borrowed money must be repaid at some future date, and if spent on things that don’t increase future income this is a problem.

No, it doesn't have to be repaid, but it will need to be rolled over. No country has ever repaid its debts. Countries manage by growing their nominal GDP by greater than the growth in their debt. It is only when this formula reverses i.e. debt grows faster than the economy that there is a problem.

Solutions include borrowing less by cutting deficits, growing faster by increasing GDP or inflating nominal GDP through increases in prices. The sensible discussions centre around which of these three approaches is best. The nonsensical "we are all doomed" discussions all focus on the alleged inability to repay a debt we have never intended to repay.

Tipp Man

I think that the majority of people in this country fail to see how "lightly" we have gotten off from the IMF. Here's a little snippet of what happened in Lativa - and they got a hell of a lot less money from the IMF than us.

The IMF, which lent Latvia €1.7bn as part of a €7.5bn programme, has forced Latvia to become more competitive by driving down wages and prices.
The loan was part of the €7.5bn package which includes cash from the European Union, World Bank and other countries, including Poland and the Nordic nations. But in human terms, the adjustment has been brutal.
A third of teachers in Latvia were laid off; the rest have endured savage salary cuts of up to 40 per cent, leaving them barely above the minimum wage.
Many have seen their pension entitlements slashed by 70 per cent; doctors and police officers face sacrificing a fifth of their pay. Many other key state services were severely curtailed including the cancellation of medical surgeries and closure of hospital wards in order to bring the cost of running the state into line.

http://www.independent.ie/national-news/latvia-collapsed-like-ireland-but-now-its-recovering-2880156.html

syklops

has forced Latvia to become more competitive by driving down wages and prices.

Jaysus, Latvia weren't exactly a pricey destination to begin with. I wonder why the IMF didnt demand similar moves here. You're right the pain, has been relatively painless so far. I know prices have gone down a bit, but really they could come down quite a bit more to make Ireland more competitive.

antoobrien

Tipp Man wrote: »

Many have seen their pension entitlements slashed by 70 per cent; doctors and police officers face sacrificing a fifth of their pay. Many other key state services were severely curtailed including the cancellation of medical surgeries and closure of hospital wards in order to bring the cost of running the state into line.

Good because the health service has been doing a p**s a poor job for the past 10 years while we were doing nothing but lumping money at it. A little proper management goes a long way as the have found out in Galway. Despite the cutbacks the two hospitals in Galway are actually seeing more patients by implementing basic customer oriented services like having a permanent discharge co-ordinate on had to ensure that people get out of the hospitals quicker, allowing beds to be freed up.

GCU Flexible Demeanour

Godge wrote: »

No, it doesn't have to be repaid, but it will need to be rolled over. No country has ever repaid its debts. Countries manage by growing their nominal GDP by greater than the growth in their debt. It is only when this formula reverses i.e. debt grows faster than the economy that there is a problem.

Solutions include borrowing less by cutting deficits, growing faster by increasing GDP or inflating nominal GDP through increases in prices. The sensible discussions centre around which of these three approaches is best. The nonsensical "we are all doomed" discussions all focus on the alleged inability to repay a debt we have never intended to repay.

A few thoughts.
We’re in programme precisely because Governments can’t just roll over any level of debt. "Government's never need to repay debts" will be seen in retrospect as one of the fallacious beliefs that contributed to the decline of the "submerging economies".
Inflating away the debt (which is effectively paying it at the expense of savers) is possible when you're operating your own currency. We don't; at present, anyway.
Increasing the value of our GDP is, similarly, not just a matter of making a decision. Plus, as I've said, borrowing now for current purposes is necessarily at the expense of the future.
The only tool at our disposal is to constrain the extent to which we add to debt.

fliball123

hi all good discussion here...for those who say it would be painful to make this adjustment in one go . this is true but is it any less painful than the current way we are doing it. As in a cut here a cut there..This figure has to be reached one way or the other by 2015. I say do this cut to make a saving of 2.5 billion out of PS pay/pensions/perks...2.5 to make a saving out of the dole and then 4 billion in taxes... If the gov could get this deficit down..They could turn around to the troika who they would then no longer need loans from and say remember you strong armed brian lendahand into bailing out the banks..Well we are not paying that money back to you after the way you dealt with or are dealing with Spain on top of that we paid x amount of billions already to the bank for this decisions say 30 or whatever we have paid..and say we are not paying that amount back to you on our debt. Someone somewhere in this gov has to start playing hard ball but we cant until we are no longer dependent on the Troika to pay our some of our bills.

syklops

fliball123 wrote: »

hi all good discussion here...for those who say it would be painful to make this adjustment in one go . this is true but is it any less painful than the current way we are doing it. As in a cut here a cut there..This figure has to be reached one way or the other by 2015. I say do this cut to make a saving of 2.5 billion out of PS pay/pensions/perks...2.5 to make a saving out of the dole and then 4 billion in taxes... If the gov could get this deficit down..They could turn around to the troika who they would then no longer need loans from and say remember you strong armed brian lendahand into bailing out the banks..Well we are not paying that money back to you after the way you dealt with or are dealing with Spain on top of that we paid x amount of billions already to the bank for this decisions say 30 or whatever we have paid..and say we are not paying that amount back to you on our debt. Someone somewhere in this gov has to start playing hard ball but we cant until we are no longer dependent on the Troika to pay our some of our bills.

I know economists hate hearing the "in my household" analogy, but, I have a 3000 euro credit card bill. It so happens my take home pay this month came to exactly 3000 euro. Should I pay off my credit card bill right away, saving myself interest and not owing anyone any money, or just pay it off in increments over the next few months? I'll have to pay the money off anyway. Yes I could pay it all off at once, but I would have no money for food or rent. I would owe zero money to the bank but I would be starving from not having food, I'd have no ticket to get to work so might lose my job, and I could get turfed out from my flat for not paying the rent. Not an exact same scenario but similar.

You said getting the 9Bn is as easy as getting 2.5 from the Public Service, 2.5 from the dole(I assume you mean social welfare), and 4Bn in taxes. 1 Billion is 1 thousand million. With a population of about 5 million, Ireland has about 1.3 medical card holders. For what ever reason that they have a medical card the government has decided that 1.3M cant afford healthcare, so it is logical they cant afford any additional taxes as well. That means you need to get 1000 euro in tax from every single one of the other 4Million people. That includes toddlers, pre-teens, teenagers, welfare recipients, and the elderly. Considering you just took 2.5Bn from the dole and welfare recipients, that leaves them in an even worse situation with regard to paying additional taxes. Parents of 5 children will have to pay 3500 thousand in additional taxes, so basically a tax on children.

Its completely undo-able.

who_me

The notion that we can just endlessly 'cut' our way out of debt is as illogical as borrowing our way out of it; just at the other extreme.

Has anyone been around the shops lately, and noticed how many of them have pretty much permanent sales, trying to get people to spend? If people aren't buying now, they'll spend less as cuts are made to their income and tax is increased. That's reducing tax income straight away, and far worse when (when, not if) businesses close. And every business that closes is contributing no tax, generating no PAYE from its employees, generating no income for them that would go back into the economy, and results in more people added to the social welfare burden.

Belfast

Blackbra32 wrote: »

I don't think there is any point in dragging it out for another 3 years. I think what the country really needs is one big adjustment that will put more taxes on the rich as well as cut oap and other welfare payments.

Yes cut the 9 billion now.

GCU Flexible Demeanour

who_me wrote: »

The notion that we can just endlessly 'cut' our way out of debt is as illogical as borrowing our way out of it; just at the other extreme.
Has anyone been around the shops lately, and noticed how many of them have pretty much permanent sales, trying to get people to spend? If people aren't buying now, they'll spend less as cuts are made to their income and tax is increased. That's reducing tax income straight away, and far worse when (when, not if) businesses close. And every business that closes is contributing no tax, generating no PAYE from its employees, generating no income for them that would go back into the economy, and results in more people added to the social welfare burden.

But it's not as stark as that. Most of what Irish consumers spend money on is imports - so those knock-on effects are chiefly felt abroad. If Irish people stop buying new cars, the impact of that is on places that we import cars from. The closure of a car dealership is a negligible impact, relative to the value of the reduction in car imports.

What we make our money from is exports - overwhelmingly, exports from the FDI sector.

Actions to encourage domestic demand make very little difference to our economy and wealth. Borrowing to keep domestic demand up to a higher level than our export performance would justify is just nuts.

antoobrien

who_me wrote: »

Has anyone been around the shops lately, and noticed how many of them have pretty much permanent sales, trying to get people to spend? If people aren't buying now, they'll spend less as cuts are made to their income and tax is increased. That's reducing tax income straight away, and far worse when (when, not if) businesses close. And every business that closes is contributing no tax, generating no PAYE from its employees, generating no income for them that would go back into the economy, and results in more people added to the social welfare burden.

The reason people are buying less is that they are borrowing less to pay for things. Take a look at the consumer credit figures, the amount being borrowed is dropping all the time. People are paying off/defaulting on loans and when the laon repayments are freed up they are choosing to spend/save it, not commit to another loan