I'm not sure about your numbers there. At the early stage of the crisis current and capital expenditure increased (it beggers belief) from 2008 to 2009: http://www.finance.gov.ie/viewdoc.asp?DocID=5750Chris, I don't know the answer to your question but one thing that does worry me is that the government has already taken 14.5 billion out of the economy and it has made virtually no difference to our % deficit to GDP.
My gut feeling is that as the government has bluffed it's way from budget to budget , many people are afraid to spend because the government will not say where exactly the cuts/taxes are going to come from. Just look at how the issue of a property tax or college fees has been floated around for the last 2 years.
6 billion euro out of the economy is a lot.It is 6,000million e.That is equivalent to 1500efor every man,woman and child in the country or 6000e for an average family of four. This 6 billion e is being used to repay our borrowings or put into the black hole of the banksor NAMA.The money does not go into the productive economy.
Bottom line is that budget cuts are very positive for the economy.
They aren't. Contractionary fiscal policy reduces aggregate demand which increases unemployment. If we reduce spending by €6bn in the budget the tax take won't reduce because we are overspending day to day by a lot!
I'm not sure about your numbers there. At the early stage of the crisis current and capital expenditure increased (it beggers belief) from 2008 to 2009:
The 14.5 billion has been used by Brian Cowen himself and quoted in several articles by Declan Kirbard in the Sunday Times.
Even in 2009, we had the pension levy budget (2 billion), the emergency budget (2-3 billion I think) and the December budget (4 billion). So in 2009 there were 8-9 billion in cuts/taxes alone yet there has been no progress.
I accept we need cuts/extra taxes but if it is too severe will it hamper growth and therefore recovery?
And I, for one, do not a believe a single word that Cowen has to say about the state of the public finances.
This means that if a government spends €6bn less, then it has to take €6bn less out of the economy. At the very best, the economy would neither gain nor lose, as the €6bn in less spending by government allows for €6bn more spending/investment in the productive economy. This of course would assume that government does not spend the money wastefully, which would be quite an erroneous assumption to make.
The government takes income from the economy via taxes and puts it back via spending (public service pay, & pensions, social welfare pensions, capital spending). Today it is spending 18 bn euro more than it is taking in - so it is planning to take in some more and spend less 6 bn in 2011 and another 8.5 bn in 2012-2014
So it is going to take more out of the economy (tax increases) and put less back (pay cuts, etc)
Thus I don't think reducing expenditure may be as bad as some commentators say.
For the same reason, I don't think a stimulus package, as proposed by some parties would do any good.
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