The Economic and Fiscal Outlook released with yesterday’s budget presents a useful table of the general government accounts. This is the accruals-based set of accounts by which the Excessive Deficit Procedure limits under the Maastricht Treaty are set. It is the deficit on these accounts that must be reduced to below the 3% of GDP limit by 2015. Click to enlarge.
The €13.4 billion deficit for 2012 is the result of expenditure at €69.1 billion and income at €55.6 billion. When the projected deficit gets below the 3% of GDP limit in 2015 it will still be €5.3 billion and this will be the result of expenditure at €68.4 billion and income at €63.1 billion.
In nominal terms over the next three years general government expenditure is projected to fall by 0.9% with nominal general government revenue due to rise by 13.3%.
With inflation and rising GDP, real expenditure will fall while there will be a slight rise in real income. As a percentage of GDP, expenditure will fall from 42.3% in 2012 to 37.7% 2015. On the revenue side, the change will be from 34.1% of GDP in 2012 to 34.8% of GDP in 2015. As shown below this is projected to bring the deficit to 2.9% of GDP by 2015.
Excluding interest payments, it can be seen that the projected improvement in the primary balance is even greater. This means that although overall nominal expenditure might remain largely unchanged there will be changes in the composition of expenditure with interest consuming a greater amount and standard government expenditure a lower amount.
The near doubling of interest payments between 2011 and 2015 is heartbreaking.
ReplyDeleteIf we can't unilaterally renege on the PN, then can we at least try to get a very long-term loan from the EU/ESM at a low interest rate? Say 40bn over 40 years at 1% pa.
@ Lambicman,
DeleteYes the 58% rise in the interest payments is large. Most of the jump takes place in 2013 and that is because of the end of the "interest holiday" on the Promissory Notes. This interest is largely irrelevant because it is paid to the IBRC which is 100% state-owned. The trouble is when the IBRC uses the money to repay its ELA liabilities and the interest rate on the Promissory Note has no impact on the size of that.
The revenue item "Other" contains about €1 billion from the Central Bank Surplus which is mainly the interest from the IBRC flowing back into the general government sector.
We could replace the Promissory Notes with a very-long term ESM loan at low interest rate. The benefit would not be the low interest rate. We already have that on the ELA. The benefit would be the delay in repaying the capital for a very long time.