strategy - austerity vs stimilus

[toughbutfair]

Finances are in dire straits - while the best possible result is securing growth, tax cuts and increased spending is very risky as we already have massive debts so if it doesn't turn our economy around we're in bigger trouble. The options are

(1) A mixture of tax rises and spending cuts to get our figures in line and pay our way.
(2) tax cuts and spend increases in the hope this will create jobs, cut dole and actually increase tax take.

While the second option gives a better end result, it is more risky - although the first option has its own risks of deflation (although that is prob good for exports)

There are enough threads about tax,PS, welfare, foreigners etc so try and stick to the 2 options.

[Schuhart]

(2) tax cuts and spend increases in the hope this will create jobs, cut dole and actually increase tax take.

I don't understand how this keeps coming up as an option. This would be a lethal policy for us to follow. I cannot put it better than the Irish Independent/Institute of Education Leaving Cert Exam Brief

Ireland is a small economy e.g. the G.D.P. of the U.S. is over $14,400 Billion whereas the G.D.P. of Ireland is €186 Billion.

Ireland is also a very open economy. In 2009 Visible Exports are forecast to be over €84 Billion and Visible Imports over €53 Billion. These are huge figures when compared with a G.D.P. of €186 Billion.

So if the government decides to adopt an expansionary fiscal policy by cutting taxes and raising government expenditure, the effect of this policy is to give people extra spending power. Aggregate demand increases and a huge percentage of this extra spending power leaks abroad in the form of higher demand for imports. This is because Ireland has a high marginal propensity to import.

The whole population of our fair land need to be exposed to this plain fact, so that it becomes as familiar to them as attending church used to be to previous generations. In fact, we should strip Irish of its unique status as the only compulsory leaving cert subject and confer that status on economics instead.

Our national survival depends on every voter understanding exactly why an expansionary fiscal policy is just a non-starter for us.

[seabhcan]

I don't believe a stimulus would work in such a small open economy. The borrowed money would just be spent in the shops of Newry - creating jobs there.

[staunch ff]

Something silly about looking for a stimulas and at same time trying to make the economy more competitive

[Middleaged]

The whole population of our fair land need to be exposed to this plain fact, so that it becomes as familiar to them as attending church used to be to previous generations. In fact, we should strip Irish of its unique status as the only compulsory leaving cert subject and confer that status on economics instead.

Our national survival depends on every voter understanding exactly why an expansionary fiscal policy is just a non-starter for us.

I agree, but we we can't jettison the heritage either.... we do need to undersatnd the game... but just because the lad you are marking is built like a perverbial "shyte house"... does not mean that we will be beaten....

I'm researching the "unique" Irish who left and went on to develop submarines, to name one, yet our enterpreneural endeveours are always away from Ireland... thats unique... I'd like to understand why...

[Dreaded_Estate]

I think €25bn per annum is the absolute limit of what we can borrow. We just don't have the money to stimulate.

The budget should contain some stimulation for certain targeted areas than can generate growth but overall we have to cut back.

[joeclogs]

I think a savage budget (much more severe than what we are going to get)- eg one that cut 10bn in expenditure would have a positive effect on that much sought after 'consumer confidence'. If people thought we had a government who could take control of the situation, they might start spending rather than saving, leading to an upsurge in the domestic sectors of the economy.

[toughbutfair]

I'm surprised that everyone is of the same view as me. We are too small for a stimilus and our recovery must be export oriented.

While cutbacks do take money out of the economy and damage it that way - even causing job losses, it is required. Also - deflation is as close to devaluation as we can do and if it makes our exports cheaper then that is good too.

[Niceguyeddie]

Even though I'd normally consider myself a lefty, I'm inclined for option 1. Our public sector is bloated, in terms of higher-up salaries and headcount, to an insane degree. It's crying out for a decisive rationalisation.

[Hazlitt]

The options are

(1) A mixture of tax rises and spending cuts to get our figures in line and pay our way.
(2) tax cuts and spend increases in the hope this will create jobs, cut dole and actually increase tax take.

What about:

(3) Spending cuts (cut borrowing!), tax cuts, and selling of certain state assets

For example we recently bought the M50 toll bridge for approx €600m - this is just the first asset that popped into my head, there are countless other assets we could easily let private operators run and raise some much-needed cash at the same time.