Government spending and economic growth do not add up!

[kerrynorth]

We have been hearing ad naseum since before the election that the government were going to prioritise spending on infrastructure, however, the figures presented yesterday tell a different story.

Yesterdays figures allow for a 4.8% increase in spending leaving circa 3% for additional spending an budget day, or E1.5billion in money terms. Even a social welfare package that would be less generous than the most recent E1.2billion package of this year will still cost you would imagine E0.8-1billion. Leaving E500-700million at most for all other spending on all other government services and capital priorities on budget day. My guess that they will only have E500million to play with on the day meaning an overall spending increase target limit of 7.5%.

On the capital side overall spending announced yesterday would fall by 1%! Even if extra social housing or transport spending were to be announced on budget day it would only be a very minor increase in the overall scheme of things and there will be other spending pressures on budget day not the least in Health where the 5.2% increase published yesterday implies possible cutbacks in reality rather than accounting for the notional existing service level when medical inflation is allowed for. Therefore, health spending you would imagine has first call on the bulk of the circa E500million available on budget day through various initiatives that get announced on budget day such as waiting list initiatives etc.

What all this means is that there is a serious disconnect between the basis upon which economic growth figures were based upon and the actuality of government spending. All the economic commentators including the ESRI factored in a big ramping up in capital spending next year to take up the slack in the construction sector from the ongoing collapse in the residential sector. However, these figures demonstrate that this is not going to happen!

I have been saying from a number of months ago that I reckon we are in reality looking at a growth rate of circa 1% next year with a significant risk that this may be optimistic with the gathering international clouds and the economy losing circa 25k jobs rather than the 26k gain forecast yesterday. All the indicators coming together are increasing coming closer to my assessment.

[meriwether]

I cant believe you still havent committed suicide.

Anyhow, good post.
To take up the slack for the falling housing completions, significant capital investment was needed, as you say yourself.

From your figures, no evidence of it.

[kerrynorth]

I cant believe you still havent committed suicide.

I'm waiting for Brian to give me a buzz and we could both go together!

[supamolli]

Could you flesh this out and provide some figures. What amount did you think the government said was going to be spent on infrastructure and what amount do you think will now be spent ?

[kerrynorth]

Could you flesh this out and provide some figures. What amount did you think the government said was going to be spent on infrastructure and what amount do you think will now be spent ?

I have just spotted something. The original allocation for capital in 2008 was set last December at E8.3billion, this has been cut to E7.6billion in yesterdays pre-budget outlook, however, there is also a new provision of E1billion in an "unallocated NDP" heading. This is a first, this never appeared in finance accounts before. Therefore he is allowing for an additional E300million in capital spending on budget day although he is going to make it look like it is an extra E1billion by only announcing where it is going on budget day. Smoke and mirrors!!!

I also see in the detail that he also based his growth figures on the basis of low 60's housing completions next year. We all know that this is unrealistic. I have been saying for months that it will not exceed 50k which cuts his growth forecast from 3% to 1.8% and if you take the CIF's more pessimistic 45k projection then it falls down to 1.2%! Therefore, you can very quickly see how talk of 3-4% growth rates are really wide of the mark.

[theyshootPDsdontthey]

Maybe KN there will be a surge of activity in the rope industry. It'd take a fair oul bit of hemp to take Biffo's weight.

KN can please you see my post on the link where Smashey and Nicey say that the rate of house price fall is reducing and give your considered opinion on my comments on the S23, S50 Reliefs etc and how the market might "readjust" i.e. fall when the rush to buy them is over on the 31st October?

[supamolli]

Could you flesh this out and provide some figures. What amount did you think the government said was going to be spent on infrastructure and what amount do you think will now be spent ?

I have just spotted something. The original allocation for capital in 2008 was set last December at E8.3billion, this has been cut to E7.6billion in yesterdays pre-budget outlook, however, there is also a new provision of E1billion in an "unallocated NDP" heading. This is a first, this never appeared in finance accounts before. Therefore he is allowing for an additional E300million in capital spending on budget day although he is going to make it look like it is an extra E1billion by only announcing where it is going on budget day. Smoke and mirrors!!!

I also see in the detail that he also based his growth figures on the basis of low 60's housing completions next year. We all know that this is unrealistic. I have been saying for months that it will not exceed 50k which cuts his growth forecast from 3% to 1.8% and if you take the CIF's more pessimistic 45k projection then it falls down to 1.2%! Therefore, you can very quickly see how talk of 3-4% growth rates are really wide of the mark.

But you agree we can still see Cowen ensure there is an increase in capital spending in 2008. In fact we are looking at 30 billion being shelled out in the next 3 years. That is certainly enough investment to take up some of the slack.

[kerrynorth]

Maybe KN there will be a surge of activity in the rope industry. It'd take a fair oul bit of hemp to take Biffo's weight.

KN can please you see my post on the link where Smashey and Nicey say that the rate of house price fall is reducing and give your considered opinion on my comments on the S23, S50 Reliefs etc and how the market might "readjust" i.e. fall when the rush to buy them is over on the 31st October?

What thread?