Tuesday, December 15, 2009

Economics 15/12/2009: Denmark cuts 2010 deficit by almost 50%

An interesting way of dealing with deficits: Denmark shows the way to lower taxes and deferred tax liabilities, while restructuring public expenditure away from direct spending to more pro-business, growth oriented spending. Read the details here.

Another interesting key fact: "The general government budget balance is estimated to decrease by DKK 154bn from 2008 to 2010. This corresponds to a reduction of 8.9 per cent of GDP of which one third reflects the loosening of fiscal policy... Measured by the fiscal effect fiscal policy is estimated to stimulate economic activity by 1.0 per cent of GDP in 2009."

So run this by me again? Cut balance by 8.9%, of which roughly 3% of GDP goes to fiscal spending to generate growth of ca 1%. suggested multiplier? Lowly 30cents on the euro... or rather DKK... not exactly a big bang for a buck, given that over 5 years interest alone would eat up some 15.8 cents out of this amount.

Another crucial bit: "The deficit on the central government net balance, which is essential for the central government debt, is estimated at DKK 141½bn in 2009 and 74½bn in 2010." Implied cut in deficit 2009 to 2010 is 49.6%. Irish Government approach to the cuts (see my estimates here) is to cut 15.2% of the deficit (if no banks recapitalization is taken into the account) or under 1% reduction (if banks recapitalization is factored in at €4 billion in 2010). DofF own rosy projections imply a cut in the deficit of 29.7%, which is still shallower than Denmark's.

So, the Siptunomics is not what Denmark subscribes to when it comes to fiscal discipline.


patrick1978 said...

This link is informative Constantin

charlberg said...

More unfounded criticism of FF olicy. As Brian Lenihan has assured us, Ireland is fine: The banks have classfied loans bigger than the entire banking sector of Romania and the public sector deficit is the GDP of Latvia, but other than that, what could go wrong?