Exchequer Deficit of 18-20% of GDP in 2010?

[kerrynorth]

I have been crunching my numbers for 2010 over the last few days and I am coming up with a deficit in the region of 18-20% next year, or €30billion in bald money terms.

Some of the underlining assumptions are that the economy will contract 8% this year and 4% in 2010. The government will cut spending by €4billion with no net tax increases in the budget.

Other forecasts that I have built in are that employment will have fallen to 1.75million by the end of 2010 - 300k less than at end 2008. Deflation of 3% in 2010.

One of the major factors on the exchequer next year is that I am anticipating a further dramatic decline in tax revenues. I am penciling in tax revenue next year of just €26-28billion, down from circa €32billion this year (government are forecasting €34.4billion this year).

On the expenditure side the €4billion in spending cuts will more than eaten up by the increased cost of servicing the national debt (€2-2.5billion higher than 2009) and an new bill on the exchequer to fill in a circa €2billion deficit in the social insurance fund.

In net terms that means a deficit approaching €30billion in 2010 or circa 18-20% of GDP.

So who is going to fund us next year and beyond?

[HarshBuzz]

any chance KN that you could lock yourself and the two Brians in a room until simple fatcs like the above permeate their thick skulls?

it would be most unpleasant for you I'm sure but you would definitely be doing the state some service

[conservative green]

Some of the underlining assumptions are that the economy will contract 8% this year and 4% in 2010. The government will cut spending by €4billion with no net tax increases in the budget.

The government will cut spending by a lot more than that, surely?

[Donald Segretti]

The problem is much worse than the authorities want to let on. We will have to borrow some €20b this year just to keep the government show on the road. With unemployment increasing and retail sales continuing to fall, it is hard to see muchof increase in tax revenue over the coming years.

Yet, when the the government commissioned Colm McCarthy to do his report they only asked for €3b worth of cuts. In fairness to McCarthy & Co, they came up with a list of €5b+. But that would still only be a fraction of what is required.

As for FG, Enda Kenny's stance on the radio this morning does not indicate that he understands the gravity of the situation. The normally sane Leo Varadkar's remark that the minimum wage should not be cut raises questions over his comprehension of our problems.

The last decade didn't just leave us with a house prices in bubble territory. It left political expectations there too.

[Simbo67]

In some respects KN you might be conservative for this year, I think that the reversal will be in the region of 10-11% of GDP this year, not 8%. Thanks for the exercise, it is good to get a debate running beyond this year.

[NapperTandy]

The problem is much worse than the authorities want to let on. We will have to borrow some €20b this year just to keep the government show on the road. With unemployment increasing and retail sales continuing to fall, it is hard to see muchof increase in tax revenue over the coming years.

Yet, when the the government commissioned Colm McCarthy to do his report they only asked for €3b worth of cuts. In fairness to McCarthy & Co, they came up with a list of €5b+. But that would still only be a fraction of what is required.

As for FG, Enda Kenny's stance on the radio this morning does not indicate that he understands the gravity of the situation. The normally sane Leo Varadkar's remark that the minimum wage should not be cut raises questions over his comprehension of our problems.

The last decade didn't just leave us with a house prices in bubble territory. It left political expectations there too.

I wonder are they deliberately underplaying how bad things are going to get? Even the recent economic forecasts from the ESRI & the Central Bank seemed a bit optimistic I thought.

[tompatrick]

we need to factor in a sizeable cut of 15% to all public sector jobs at ALL levels also a there will be cuts in social welfare of 10+%. . . There is no choice. . . The dogs will scream but this will happen. . .

[HarshBuzz]

we need to factor in a sizeable cut of 15% to all public sector jobs at ALL levels also a there will be cuts in social welfare of 10+%. . . There is no choice. . . The dogs will scream but this will happen. . .

you seem to be operating under the delusion that we have individuals capable of decisive leadership in key positions of power

we don't

[Simbo67]

An interesting thought experiment is the expectation of (negative) growth in 2010. There seems to be an almost universal expectation that it will be 4%. However, as late as January of this year policymakers were talking about growth in 2009 being minus 4% (some of us here said it would be 10%), that gradually increases to 6% and then 8%. Some are now mentioning 10%. I suspect that it will come in around there for 2009. We have no idea what it will look like next year. Of course, the actions that will be undertaken by the government (for budgetary emergency reasons) will add further deflationary pressures. However, if we imagine a scenario where the government has to take another tilt at it in early 2009 because of the declining budgetary position, that might put further additional deflationary pressures on the economy. In the end, it could well be above 4% for 2010.
If the 25 billion deficit turns into a 30 billion deficit by next year, very harsh measures will be needed to keep the wolves from the door.
The question is how much can we squeeze out of the public sector and how many tax hilts can we squeeze out of the private sector that wont be counterproductive? One way or the other, it looks like 2009 and 2010 will punch a hole in our finances above 50 billion euro.

[Clanrickard]

If the 25 billion deficit turns into a 30 billion deficit by next year, very harsh measures will be needed to keep the wolves from the door.
The question is how much can we squeeze out of the public sector and how many tax hilts can we squeeze out of the private sector that wont be counterproductive? One way or the other, it looks like 2009 and 2010 will punch a hole in our finances above 50 billion euro.

Do you think we have people in power to take these decisions? I don't sad to say.