Wednesday, December 9, 2009

Economics 09/12/2009: Budget 2010 - first shot at numbers

I will be blogging on the Budget 2010 over the next few days, but here is the main point:

The Budget did not deliver a significant adjustment to our structural deficit.

  1. Claimed adjustments to the deficit totaling €3,090 million on current expenditure side and €961 million on capital side. These are gross figures which imply that we can expect net adjustments of ca €2,600 and €800 million each to the total deficit reduction of no more than €3,400.
  2. Per table below, the Exchequer deficit will likely stand at €21,400 million in 2010 and not anywhere near the projected deficit of €17,760 million.
  3. Stabilization of deficit is not happening on a significant downside, but in a marginal fashion, which is simply not good enough.
The main conclusion here is that the Budget has not gone far enough in reducing the structural deficit. There is another €10-12 billion worth of cuts looming for 2011-2012. It would be dangerous to assume that this can be corrected for through re-jigging tax system in 2011 as Minister Lenihan appears to imply.

At this junction, I simply cannot see how the Budget delivered anything more than a breathing period for Ireland before we resume our slide toward Greece. 12.4% deficit before we factor in demand for capital from Irish banks is just not enough. Full stop.

The Minister is now talking about €3 billion cut in 2011, then €5 billion cut in 2012-2013. This implies that from next year's standing position we are looking at a deficit of well over €9-13 billion in 2014. Assuming economy grows at a robust 2.5% every year from 2011 through 2014, this would imply a deficit of 4.9-7% of GDP - way long of the SGP-required 3%. If economy grows at even briskier pace of 3% per annum over the same period, the resultant deficit will be around 4.8-6.9%. Again, not much of a fit for our promises to the EU...


Holbrook Fields said...

that's a chilling post but i think you may be right. i hope you'll post ideas on what steps should be taken.

Charlie Camara said...

Nice summary. Unfortunately the Irish and International media seem to be giving the thumbs up and the Minister believes we are over the worst. How long more will the ostrich keep its head in the sand?

Another John M said...

But Lenny said "the worst is behind us."
But seriously, this budget was a perfect opportunity for real reform. Instead, all we got was a cynical FF ploy to pit sections of the workforce against each other. I have posted it here before, but it is time to get rid of the deadwood and the legions of political appointees from the system.
Abolish the Presidency and the Seanad. Get rid of half the TDs. Cap public sector pay at 100k.
Then start using our heads. What quangos or government departments are duplicating effort? Better yet, who is duplicate regulating the private sector? Amalgamate the agencies hitting up companies more than once for the same thing. Set up a website (quick and cheap) where these things can be reported, then get to work.
Stand down the boards of all quangos. Get rid of town councils. Amalgamate county councils in less populated areas. Stop subsidising the private sector. Did you know that all government departments and agencies buy all the daily papers for all of their senior people?
Shut down the zombie banks. We cannot afford that economic craziness.
There is a whole lot more that can be done. All it takes is a little imagination and effort. We don't have to let FF turn this country in to a cesspit of negativity and hopelessness. We've got brains. It's time we started to use them.

Martin said...

I think that you have to look at the budget from a political as well as an economic point of view. Cynical FF has always made decisions with one eye on the next election. This budget is no different. They know that they will not get in again after the next election they are trying to limp to the next election without making to many hard decisions or reforming the public sector. That will be the job of the FG/Lab Gov.

Jobs in Ireland said...

Government should lead by example, cut their fat, not just one pension but several pensions. They know they will be out of office soon so the impact on their TD's Minister's pensions etc will put them back on the big salaries. Government pensions should be payable at age 65, like the rest of the citizens if this country and only the pension from the highest office attained to be paid. No TD's pension on top of a Minister's pension and based on the number of years worked like the private sector. If they love the country and are as patriotic as the want us to believe they are then these pension changes should not bother them.

An announcement of closing the Seanad and a reduction in numbers of TDs by 50% would have been most welcome in this over represented country.

If the UK used the same ratio of MPs per head of population, the UK would have to have over 2,500 MPs against their present 650+ approx. We are top heavy with too many chiefs on big salaries/pensions and unvouched expenses stuffing their faces at the Leinster House Gravy Train.

The replacement of Ministeral Mercs for more environmental friendly (and cheaper alternatives) would have been welcome together with the scrapping of Garda drivers. When they drive around in Mercs they think they are running (or ruining) the Bundesrepublic of Deutschland :(

Enough is enough, the Gravy Train
/ Galway Tent benchmarking days are dead and gone !

dp said...

Lenny & Co. may be illiterate in economics, but they are spot on in Freakonomics, showing and stressing only on the figures which work in their favour and refusing to examine the root of the problem.

The government’s track record shows that they are in continuous denial of the bleak reality. To take medicine in full, one has to have (1) the stomach and (2) the will to do so; the current government has neither of two. Unless urgent and radical measures are taken, the future looks even bleaker. So,

1. No public servant should get more than 100K per year; those who think that they worth more, should offer their ‘expertise’ to France or Germany. We cannot afford them.
2. Radical changes in immigration policy are needed: Ireland was very proud of attracting the army of Polish break layers and carpenters from newly joined EU countries. The time is now to create productive environments and real career perspectives for intellectuals, wherever they come from.
3. Let die Anglo-Irish etc. No need to keep it on life support at the expense of public health. Places in the ICU are limited and will be required for other “stars” of the Irish economy. Soon.

Graham Williams said...

The debt figures are all based on a % of GDP. The more relevant numbers are for GNP adjusted for repatriations, which for Ireland is about 15% below GDP. It makes our situation look even worse.