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  #1  
Old 23-07-2011, 11:37 AM
nconroy nconroy is offline
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Default Budget Deficit - When is it going to reduce?

I may be missing something; hopefully someone on e Askabutmoney will put me right.

For the last three years we have been told that the budget deficit is 18 to 20 billion Euros, it is the same figure each year.

We are also being told that the tough budgets over the same period were necessary to reduce the budget deficit.
If I remember correctly, the total amount withdrawn from the economy over the last three years is at least 12Billion Euros, yet the deficit remains the same. What’s going on?

To reduce our budget deficit by 2013, going on the current deficit the next two budgets will need to take 8 to 10 billion each year out of the economy, plus pay the interest on ECB/IMF loans of around 8 billion.

Am I massively misinformed, or is there a magic formula at work that will make all this right by 2013?
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  #2  
Old 23-07-2011, 12:43 PM
Brendan Burgess Brendan Burgess is offline
 
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No, you are not massively misinformed.

The rough plan is to cut the deficit but also to grow GDP so that the deficit as a percentage of GDP will be reduced to acceptable levels.

It's hard to see it happening though.

Brendan
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  #3  
Old 23-07-2011, 01:56 PM
DerKaiser DerKaiser is offline
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These exchequer statements are great for the real anoraks.

http://www.finance.gov.ie/documents/...ejunefinal.pdf

The deficit to the half year is actually €2bn worse than last year but it includes a promissory note to the banks of €3bn, so the true deficit is €1bn better than this time last year.

This improvement is pretty much coming from additional income taxes.

Spending is broadly unchanged but this disguises reductions in capital expenditure offset by increases in social welfare payments.

There has been an inevitable massive increase in social welfare, and with all the extra borrowing to fund the banks and the deficit the cost of servicing our debt will now increase.

Without really significant cuts to social welfare and public pay, the deficit is not going to go anywhere fast but the dilemma is whether these cuts can be absorbed by a very weak economy right now.
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  #4  
Old 26-07-2011, 09:28 AM
Chris Chris is offline
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I think that there is a lot of political and media deceit in talking about 3 years of budgetary cuts. When you look at government spending figures you will notice that spending actually increased from 2008 to 2009 by €1.4bn (http://www.finance.gov.ie/viewdoc.asp?DocID=5750). Of course this was at a time when politicians tried to tell the public that because Ireland was the first EU country officially in a recession, it would be the first country out of the recession.
What baffles me even more is page 5 on this document: http://www.finance.gov.ie/documents/...2010/bl159.pdf
It shows that the deficit is expected to increase again this year to over €22bn. This all smells of Orwellian newspeak to me. At the same time I heard Joan Burton on the radio yesterday morning saying that the deficit will not be such a big problem once the economy grows again; she said something to the tune of when GNP goes from €100bn to €105bn this will quickly solve the deficit problem. Does anybody actually believe these people? Do they have any idea that there is no recovery and that GNP actually shrank and did not grow by 5%? (http://www.irishtimes.com/newspaper/...reaking12.html)
I agree with DerKaiser, without BIG cuts in welfare and public pay there is no way the deficit will be brought under control.
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  #5  
Old 26-07-2011, 02:12 PM
nconroy nconroy is offline
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So, things are not looking too bright.
Back of envelope calculation, based on GNP 5% improvement (a miracle, I know).
This is €5Billion national income, after tax may give the Gov €750Million.
€8Billion in interest, less €6Billion (2011 Budget) = An additional €2Billion in the red.
Less the €0.75Billion from tax on 5% GNP growth = and additional €1.25Billion in the red.

So despite the savage budget for 2011, we will have a budget deficit of at least €1.25Billion higher starting in year 2012.

Iagree with Chris and DerKiser, I suspect there are some really savage cuts to come in the next few budgets, they will need to be much worse than any of the previous budgets. The Government is using the slow cook method to introduce the various measures. To introduce them too quickly would kill the patient.
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  #6  
Old 04-10-2011, 10:04 PM
DerKaiser DerKaiser is offline
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Quote:
Originally Posted by DerKaiser View Post
These exchequer statements are great for the real anoraks.

http://www.finance.gov.ie/documents/...ejunefinal.pdf

The deficit to the half year is actually €2bn worse than last year but it includes a promissory note to the banks of €3bn, so the true deficit is €1bn better than this time last year.

This improvement is pretty much coming from additional income taxes.

Spending is broadly unchanged but this disguises reductions in capital expenditure offset by increases in social welfare payments.

There has been an inevitable massive increase in social welfare, and with all the extra borrowing to fund the banks and the deficit the cost of servicing our debt will now increase.

Without really significant cuts to social welfare and public pay, the deficit is not going to go anywhere fast but the dilemma is whether these cuts can be absorbed by a very weak economy right now.
Q3 figures are out.

Again, the underlying improvement is completely driven by the extra income levies.

No progress is being made in spending. This is really disappointing.

Health spending is actually up €1bn year on year - that is a scandal.

We need a serious move from Brendan Howlin in December.
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  #7  
Old 05-10-2011, 10:14 AM
csirl csirl is offline
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This deficit figure includes some of the bank recapitalisation costs - which are once off payments (we hope!).

What is the deficit when payments to banks are excluded? - this is the real deficit - the gap between public income and expenditure on public services.
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  #8  
Old 05-10-2011, 10:27 AM
DerKaiser DerKaiser is offline
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Quote:
Originally Posted by csirl View Post
This deficit figure includes some of the bank recapitalisation costs - which are once off payments (we hope!).

What is the deficit when payments to banks are excluded? - this is the real deficit - the gap between public income and expenditure on public services.
The deficit is up €7bn.

There have been €10bn in bank recapitalisations that didn't happen in 2010 and there has been a net increase in the bank guarantee fees collected of €1bn i.e. a €9bn banking drain over and above 2010.

Therefore the underlying deficit is €2bn lower. The good news is that the state is at least benefitting from the income levy, social protection costs appear to be stabilising and it looks like the costs of borrowing won't be as bad as anticipated.

The Croke Park agreement has yielded nothing, however. The only spending reductions are on capital projects and there is no evidence that efficiencies are being found in public spending. This severely weakens the argument against uniform cuts across the board.
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  #9  
Old 15-10-2011, 12:33 PM
Chris Chris is offline
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I agree DerKaiser, these are really scandalous figures. There is no end to funds flowing onto banks, we have now heard that €1bn will have to be pumped into Credit Unions. The total deficit is simply not decreasing fast enough to to even come close to the government's calculation of €190bn total state debt by 2014 (or was 2013?).
Maybe it's tactical, if you are going to default you might as well make sure you have plenty of debt to default on.
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  #10  
Old 01-11-2011, 07:45 AM
onq onq is offline
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So the government policy stands revealed at last!
Borrow for the rest of our lives to keep the banks and the public pay bill afloat, and hope the economy recovers.

But the economic recovery is being hampered by the banks not providing the liquidity the economy needs to preserve existing businesses.
Do you know what a representative of the bank told a recent B2B group - they were looking for venture capital investment opportunities - the gambler's choice again!

Why are the banks still not lending into our economy and given that the aren't why aren't they being forced to play their role of credit provider, the role they were supposed bailed out for?
Last year they were approving one in ten loans and this year apparently it is half that again, so the lending level is one in twenty.
What is going on with our banks and why isn't our government doing anything to get them moving/lending again?

And I heard recently that the Director General of our great financial regulator is jumping ship!
Is this an inside move to benefit us, or a hands in the air move to save herself?


ONQ.
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  #11  
Old 01-11-2011, 02:55 PM
DoctorEvil DoctorEvil is offline
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Default It's alright Dept of Finance found 3.6bn down back of the couch!

This would be hilarious if it wasn't true.

What are we going to do with this money!

http://www.rte.ie/news/2011/1101/finance.html
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  #12  
Old 01-11-2011, 03:16 PM
onq onq is offline
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Mines a cappuccino!
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  #13  
Old 01-11-2011, 04:40 PM
Purple Purple is offline
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Break out the breakfast rolls, good times are here again!
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Better to be a man of character than one of means
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  #14  
Old 01-11-2011, 07:07 PM
Jim2007 Jim2007 is offline
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Quote:
Originally Posted by onq View Post
Why are the banks still not lending into our economy and given that the aren't why aren't they being forced to play their role of credit provider, the role they were supposed bailed out for?
The banks can't lend what they don't have! When the banks were taken over by the government that amount of capital pumped into them was enough to give them credibility among their peers and to enable them withstand one more blow if necessary and that is about it. The stress tests done earlier this year show that that has been achieved, but that is all.

There is very little spare capital in any of the banks right now, so before they can start lending they first need to acquire cash to bring their ratios up to a level that would allow them to do so. There is basically three possibilities to do this:
  • Increase Deposits - The money pumped into the banks plus the guarantee should have been enough to encourage people to start depositing again but it has not.
  • Raise New Capital - Since the taxpayer it the biggest shareholder, it is going to be a tall order, unless the tax payer is willing to pump in more money.
  • Borrow - But with all the talk of us defaulting on bonds, I can't see anyone being happy to lend us money
At this point of time, I'd say the Irish banks are capable of providing standard transactional services, a small amount of lending and that is about it.

The other thing to remember is that lending to businesses, especially start ups is a very high risk activity, much more so that lending to home owners - most risk models I've seen assume that at least 90% of the funds given to a new business will not be paid back!!! It really is hard to see how a government owned institution with little capital can play a major part in this.

The idea of bringing a venture capitalist into the equation, the bank's participation might encourage a venture capitalist to get involved and at the same time the bank would have a partner who is will to take a major hit in the event of it all going wrong. It's worth a try given that the other three options and not likely to work out in today's climate.

Jim2007
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  #15  
Old 01-11-2011, 08:37 PM
onq onq is offline
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Hi Jim,

I'm afraid I cannot accept that.

I find the argument that the banks don't have enough to lend specious - if they don't lend they will go under, because they will not make progress and prosper - IOW they are dysfunctional.

I said at the start of this dog's dinner of propping up the banks that we needed a bad bank to go belly up and a new commercial lending bank.

We got neither and we are not well served with what we have left.

Not good enough.
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  #16  
Old 01-11-2011, 10:00 PM
RMCF RMCF is offline
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To be honest a lot of this economic mumbo-jumbo baffles me.

We have been hit hard for 3 yrs so far and apparently the austerity measures in Ireland have been among the toughest ever imposed, anywhere. And they will continue.

We have also been told that we are doing well, and things are improving.

Yet others come on shows like Prime Time etc and say that its only a matter of time before Ireland defaults as well.

So one side is going to be wrong. Is one side fooling us to keep us as happy as possible, or is the other just trying to create panic for a good story?
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  #17  
Old 02-11-2011, 01:16 AM
onq onq is offline
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The one thing that hasn't happened is a reduction in the gap between our tax take and what it costs to run the country.

To reduce the numbers on the welfare we need jobs and to create jobs you need both enterprise and sources of liquidity.

The traditional source of liquidity - the banks - has dried up, so until we find alternatives, there will be no growth in jobs and no recovery.

This is something that will bring down the current government in less than a year.
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  #18  
Old 02-11-2011, 03:58 PM
DerKaiser DerKaiser is offline
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Quote:
Originally Posted by RMCF View Post
To be honest a lot of this economic mumbo-jumbo baffles me.

We have been hit hard for 3 yrs so far and apparently the austerity measures in Ireland have been among the toughest ever imposed, anywhere. And they will continue.

We have also been told that we are doing well, and things are improving.

Yet others come on shows like Prime Time etc and say that its only a matter of time before Ireland defaults as well.

So one side is going to be wrong. Is one side fooling us to keep us as happy as possible, or is the other just trying to create panic for a good story?
In truth no one can be sure.

There are many people who are happy to lend money to the Germans for 10 years+ for a return of 2%.

If Ireland could convince the money markets that we were as unlikely to default as the Germans, we too could borrow money over durations so long that we would effectively be not paying back the capital and the interest rates would be so low that we would have no trouble paying them.

The money markets, however, are very fickle and volatile.

If we can convince them that we can balance the budget in a matter of a few years we could end up with affordable interest-only debt repayments (maybe €7bn p.a. on €180bn debt).

If we can't, no one will give us more money.

Once we wade through all the mumbo-jumbo, the one thing we know is that we need to be in a situation where tax revenues pays for day to day government spending if we're to have any hope. That is an area we still have control over.

The capital costs of propping up the banks is the other major issue, but we have no choice in this as long as we wish to be part of the EU. It's an ugly situation, but that's life.
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  #19  
Old 02-11-2011, 04:30 PM
44brendan 44brendan is offline
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Quote:
Originally Posted by DerKaiser View Post
The money markets, however, are very fickle and volatile. .
Acknowledged. However the whole basis for the prolonged austerity and the repayment of unsecured Bonds is to convince the money markets that we are well behaved responsible citizens (unlike those irresponsible Greeks) who are deserving of credit at an affordable price. Our difficulty is that we have no idea whether this strategy will actually work. We are reliant on rating agencies whose mechanisations for credit rating are both unreliable and historically proven to be inaccurate.
The Government strategy is a gamble and ultimately we don't know how it will play out over the long term.
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  #20  
Old 02-11-2011, 04:37 PM
onq onq is offline
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Austerity is one thing, but the banks to lending is quite another.

The racket promoted by the ratings agencies to push up interest rates is yet another loaded scam.
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