Tuesday, January 27, 2009

In up to their necks

The government have been issuing revised Budgetary Projections for the next five years. They can be found in the addendum to the Stability Programme Update here. It does not paint a pretty picture. The 2008 outturn and five year projected figures for the General Government Balance in million are (with % of GDP in brackets)

2008: -€11,796 (-6.3%)
2009: -€17,165 (-9.5%)
2010: -€16,271 (-9.0%)
2011: -€12,092 (-6.4%)
2012: -€9,443 (-4.8%)
2013: -€5,537 (-2.6%)

These suggest that over six years we will have to borrow in excess of 70 billion (provided the cumulative annual "adjustments" of €16.5 billion that have also been announced can be found over the same periods).

However, our debt is low to begin with and our debt to GDP ratio is predicted to stabilise at around the 60% level.

But what if we compare the deficits not to GDP (and one could argue that GNP would be a better measure for Ireland) but compare it to Government Revenue. The following ratios give Total Expenditure (Current and Capital) as a percentage of Total Revenue and also assume that annual "adjustments" aren't achieved.

2008: 134%
2009: 157%
2010: 165%
2011: 165%
2012: 166%
2013: 161%

These are truly staggering. To quote one of our late Taoisigh "we are living beyond our means". To bring it to an individual level this is like someone with an income of €37,500 trying to maintain an expenditure level of over €60,000. Impossible!

Government expenditure has become totally removed from government income. If by some chance the government does manage to find €16.5 billion in cumulative annual adjustments the ratio for expenditure to income will still be 123%.

If you look at the adjustments from 2009 to 2013, the government is looking to cut projected expenditure (i.e. under current conditions) by a combined total of €48 billion over the five years. As to how this will be done. Nobody knows!

So the plan for the next five years is to cut planned expenditure by almost €50 billion (and not €16.5 billion as the Taoiseach is saying). And even if that is achieved there will still have to be additional borrowings of almost €70 billion. You know what they say, "a billion here, a billion there and pretty soon you're talking about some real money". 120 billion is a real number.

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