As Budget 2013 hoves into view on 5th December 2012, you can expect to see a lot more of Brian Hayes, the junior minister at Brendan Howlin’s Department of Public Expenditure and Reform. Which may not be good for your blood pressure as the €130,042 junior minister challenges us all to find ways to save the State money?
Brian is the junior minister that has had something of a Pauline conversion as regards the sustainability of Irish debt in the past year – a year ago, he swore blind that the debt was sustainable but as talks intensify with the Germans over a debt deal, Brian now swears blind that it’s not sustainable. Confused?
Well, with Brian’s latest soundbite, you are likely to be really confused. He is now telling people that okay, the €3.5bn adjustment that will be announced in the Budget in just over a week, will be tough, and that indeed we have a total of a further €8.5bn of adjustments to go, but we’re over the hump having already adjusted by €24bn. Seriously that is what he said more than once this weekend, most recently on RTE’s The Week in Politics.
The junior minister is talking rubbish.
In 2013, we are set to cut and tax €3.5bn, that much is true. But in 2014, we are set to cut and tax a further €3.1bn and in 2015 a further €2bn still. Yes that adds up to €8.5bn but the adjustments are INCREMENTAL. In other words, we have a deficit of €13bn today, in 2013 we will reduce that to €9.5bn, in 2014 we will reduce it to €6.4bn and in 2015 we will reduce it to €4.4bn.
So we are taking €3.5bn out in 2013, €3.5bn PLUS €3.1bn in 2014 and €3.5bn PLUS €3.1bn PLUS€2bn in 2015, that is, a total of €18.7bn. Yes, we are presently planning to take €18.7bn out in adjustments in the next three years. NOT €8.5bn.
That would be bad enough but when Brian refers to the €24bn already taken out in budget adjustments, he IS referring to the cumulative taken out since 2009. Remember at our peak, our deficit was about €25bn. So if we had taken out €24bn from the annual deficit, then we’d almost be balanced. So Brian is talking about cumulative with his €24bn but an annual incremental with his €3.5bn and €8.5bn. It like apples and crate loads of apples.
The best comparison might be that by reference to 2008 we have to the end of 2012, taken an overall total of €24bn out through budget adjustments. And that by reference to 2012, we have a further €18.7bn of planned adjustments and even then we will still have an annual deficit but it will be less than 3% of our GDP. Or to put it in a simpler way, we have endured a lot of austerity since 2008 – €24bn in fact – but we have a lot more still to endure – €18.7bn planned.
Seriously, for €130,000 a year of public money, we should have better.
(Graphic above produced by Japlandic.com, contact here)
Re ‘what’s your alternative, BUDDY?’: I look in on this blog every now and again (though I’m not a member of any trade union):
http://notesonthefront.typepad.com/politicaleconomy/2012/11/claiming-the-alternative.html
@Kieran, not sure who the BUDDY is, but the view on here is that we need be frank about the scale of the further adjustment needed, it is going to be quite bad, and if we know the true overall parameters then we might just get a fairer, more effective adjustment rather than a cobbled-together adjustment reflecting the relative strengths of various interest groups.
I included BUDDY as an add-on to what the Minister is really saying, not as a slight on your good self, if that’s what you think.
And I agree with you on the need for frankness. Ireland needs an honest appraisal of what exactly it is, where it stands in the world, what resources it has at its disposal, etc. Then we might begin to formulate a real plan for recovery.
I’ve waxed lyrical on it before, but comparing ourselves to the USA, UK, and looking to those countries for solutions will get us no where.
Honest appraisal all the way.
In a word, yes.
There is a lot of economic illiteracy around but we can convict Brian Hayes of it in this instance.
Here is my summary of “Fiscal Consolidation” packages:
July 2008: €1 billion
October 2008: €1.5 billion
February 2009 €3.1 billion
April 2009: €5.4 billion
November 2009: €0.8 billion
December 2009: €4.3 billion
December 2010: €5.4 billion
December 2011: €3.8 billion
These sum to €25.3 billion. You can do some funny cumulative sums if you wish but these are the estiimate of annual full-year impact of the measures introduced.
They didn’t reduce the deficit by €25 billion for a number of reasons. First, the economy was in freefall during 2008, 2009 and into 2010. The deficit was still widening at the same as efforts to reduce it were being undertaken. Second, some of the measures are counted twice in a case of “we really mean it this time” and some of the changes in expenditure were used to fund increased expenditure elsewhere. Third, some of the measures were rescinded such as the VAT increase in Budget 2009. Fourthly, these are DoF estimates of the impact that the measures would have. These estimates should not be taken as being outturns. In the €5.4 billion package from April 2009 both the Income and Health Levies were doubled. In a full-year it was estimate that these would raise €2 billion and €2.5 billion respectively. The actual full-year outturns for 2010 was €1.5 billion and €2 billion. The outturn was €1 billion lower than the estimated impact.
That should be “can’t convict Brian Hayes of it in this instance” !
The mistake referenced above. Apples and crates of apples.
Do you mean where he added up the full-year effects of the budgetary measures since 2008 and got €25 billion and added up the full-year affects of the budgetary measures to 2015 and got €8.5 billion?
July 2008: €1 billion
October 2008: €1.5 billion
February 2009 €3.1 billion
April 2009: €5.4 billion
November 2009: €0.8 billion
December 2009: €4.3 billion
December 2010: €5.4 billion
December 2011: €3.8 billion
TOTAL: €25.3 billion
December 2012: €3.5 billion
December 2013: €3.1 billion
December 2014: €2.0 billion
TOTAL: €8.6 billion
Where is the inconsistency between these?
@Seamus, re your comments, I am going back over each of the adjustments referred to. Even taking what you say into account, the €25.3bn adjustments in Jul 08-Dec 11 plus €8.5bn in Dec 12- Dec 14 plus the €5bn-odd deficit that will remain after 2015 indicate a gross annual deficit of €38.8bn. You’ve helpfully set out reasons why the previous adjustments may not have affected the deficit, but with a peak deficit of about €25bn, that’s a considerable amount of non-delivery and if the €24bn was derived in the same way you set out, then it still appears misleading. Will respond later.
@ NWL
There is lots of detail here.
It is not correct to say that €x billion of adjustment should reduce the deficit by €x billion. There are lots of revenue and expenditure items in the budget that change automatically. An economy is not static.
For example, in 2007 providing the Contributory State Pension cost €2,755 million. This year it is estimated that the cost will be €3,760 million and this is mostly the result of an increase in the number of people aged over 65. The record numbers of births recorded in the past few years will be doing the same to child-related payments. There is also the effect of things such an increments to public sector workers which are not included in the ‘adjustment’ total because they happen automatically and are not subject of a specific budgetary measure.
And, of course, there is interest expenditure doing the same to an even greater extent. In 2007, general government interest was around €1.8 billion. This year it will be €6.3 billion.
That’s at least the 2nd time he made that mistake in public. You have to lay somev of the blame at the feet of conventional media for letting run around talking such nonsense.
What mistake are you referring to?
Not sure what the suggestion is here – that we extrapolate the budget adjustment into forever, and come with an annuity style figure? ie the ‘permanent’ budget adjustment is a cumulative €500bn? Budget adjustments are generally referred to as being for the full year impact and on an incremental basis.
Agreed. Imagine what the “cumulative impact” of doing the same for the expenditure increases and tax reductions from 1997 to 2008 would be???
If I were to gift you a thousand euro a year for two year, would you view the gift as being one or two thousand?
I’m with NWL on this one, it makes sense to aggregate the impact of budget measures (over a cycle or specific programme).
I would view it as a thousand euro a year for two years.
But this two-year example is not realistic as there is not useful as there no specific end-date for most budgetary measures . It is not as if all the measures introduced from 2008 to 2015 are going to be reversed in 2016.
If you are going to give me a thousand euro a year, and I don’t know how long for, the best I cans say is that I am gaining a thousand euro a year. If you were doing so and stop giving it, the best I can say is that I am losing a thousand euro a year.
In relation to the question about “fixing the deficit”
I believe child support payments to “lone parent families” should be made compulsory by the father and mother.
If I father a child or children with different women.. why should the taxpayer pay for the children’s up keep?
The Children are mine, they are my responsibility, not the taxpayers.
But of course, in the land of Zero Accountability, it’s always somebody who pays, sure after all…. has’nt the taxpayer got deep pockets?
@ Seamus Coffee
Here is a slightly different question so.
What is the likely hood of 8.5 billion in adjustments getting us anywhere near the Deficit target set out? Even forgetting about the growth in off balance sheet activity.
You say there has been 25 billion in adjustments but it hasn’t resulted in a 35 billion turnaround in our fiscal deficit nor anything like it. So what is the probability of 8 billion in adjustments getting us back to a 3% deficit?
Its somewhere between 0 and 0.5% but the politicians are talking about it like its a likely scenario.
sorry 25 billion turnaround.