Fiscal plan published, difference split?

Ireland’s rail gauge, the distance between two load bearing rails that make up a single railway line, has a strange history. The standard gauge is 4ft 8inches. Ireland’s is 5ft 3inches. During the 1800s, each new railway line chose its own gauge, and in 1845/6, a commission was set up to essentially split the difference, meaning that Ireland has one of the most unique (and uniquely expensive) rail gauge systems in the world.

Splitting the difference might work to get an issue through a committee, but it does not often help in solving practical problems.

In a similar vein, Ireland’s medium term fiscal plan has been published. The document is here. Looks like the government has not taken the ‘front loading of pain’ approach advocated by some commentators, nor the avoidance of austerity championed by others, and gone for a 3.8 billion euro, ahem, adjustment, this year.

I leave it up to commenters to judge the merits to this approach. The document makes for interesting reading. Chapter 4 in particular is an analysis of the debt position (and sustainability, obviously) of the State.

Author: Stephen Kinsella

Senior Lecturer in Economics at the University of Limerick.

20 thoughts on “Fiscal plan published, difference split?”

  1. Time to pay up lads. Ye didn’t want the house party to stop rolling, didn’t want the ATMs to stop working, didn’t want to your paychecks to stop being denominated in euros, didn’t want any debts forgiven, and ye didn’t want the people who wrecked the country to be investigated by the Dail.

    Time to pay up so!

  2. The plan seems to be predicated on ever increasing exports…
    “Mr Noonan said exports will be the only significant source of “positive momentum” in the economy for the next couple of years. “That being the case, safeguarding and expanding the economy’s export base will remain a critically important objective of overall economic strategy,” he said.”

    One slight difficulty …the exporters association are forecasting a 50% drop in the last quarter this year from 7.4 to 5%.

    And 2012 is looking distinctly ropey.

  3. @Ceteris

    You mean they IEA have cut their growth forecast by 50% – they way you write it implies quarterly exports of Goods and Services will drop from 40bn to 20bn..

  4. The plan is predicated on oil prices falling for the coming two years. The capital budget has been cut by nearly 1.5bn over 4 years. The document suggests that income tax will not rise and instead increased tax revenues will come mostly from VAT, Excise and PPR home tax.

  5. @Bond Eoin Bond

    Great idea..its worth 44b today. Deutsche is only worth 26b and Soc gen is a mere 16b.

    Could we swap AIB for Deutsche and Commerzebank…about the same cap.

    Or better still AIB is worth 61 billion us dollars and Bank of America is worth 66 b us dollars. Reverse takeover?

  6. Absolute nonsense – they are not even asking themselves what they are trying to save.
    Maybe its their masters ass.
    The physical economy comes first , money is a utility , it is not a end in itself.
    The inflationary years did not create any wealth and the forthcoming deflationary years will not create any wealth either.
    Economic policey objectives that orbit financial indices is not economic policey.
    We need to get out of the Euro now – only new paper can finance states , not tax or indeed private individuals / corporations buying goverment bonds as they subtract from the money supply.
    We have a CB that is telling us F$£K off basically.
    The only response is to tell the Frankfurt anti- central bank and the domestic cuckoo central bank some choice Anglo – saxon insults.
    Elements of the British establishment is looking for a exit from this house party of madmen – our diplomats should be working overtime now.

    The ECB seems to be resisting deglobalisation – by not adjusting its currency to a reindustrialisation of Europe.
    Cutting the money supply will not industrialise us – it will turn us back into a agrarian society

  7. Cet,
    I think we might be better keeping our AIB stake. Both Bank of America & Comedybank are under capitalised.

  8. @Tull
    I was thinking that if we could reverse AIB into BOA we could then go to the Fed window and borrow zillions at .2%, then we could tell the ECB to take a hike. ( smiley)

  9. What happens now with respect to the independent Fiscal Advisory Council,
    does it issue a statement giving its views on the projections (realism, risks, probabilities) and the policy proposals?

  10. Snark aside how about we try and do some guessing on the actual substance of the matter – the bit that every house in the country is wondering about? 3.8 billion to be found, 1.6 in taxes and 2.2 in spending. 0.6 billion of the taxes are baked in. No changes to income tax bands, rates or credits.

    So.

    Where do we get 1 billion in new tax revenue? Noonan mentioned VAT increases, property tax, carbon taxes and then the dread phrase “and so on..”

    Anyone got any ideas about the “and so ons”?

    And then the real nub of the nub of the matter.

    2.2 billion in spending cuts. Some of that will be capital but the lion’s share will be good old day to day spending. In the document the key section is:

    “… on Thursday, 17th November, a Public Service Reform Programme will be published, setting an ambitious agenda of public service wide reform and re-structuring measures that have been developed in the context of the Comprehensive Review of Expenditure (CRE). This is consistent with the Government’s determination that reductions in administrative overhead and bureaucratic costs must make a significant contribution to the overall fiscal consolidation effort.”

    Given that (a) there is no more ‘low hanging fruit’ and (b) the CPA is still in existence, does anyone have any ideas about where these spending cuts will fall?

  11. ‘…one of the most unique …’

    Oh Christ! The standard of English on this website deteriorates by the day. But then, no one thinks twice anymore when they see the phrase ‘close proximity’ (a ‘pleonasm’ in grammatical terms), so the disease has even encroached on the groves of academe.

  12. Oh Christ! The standard of English on this website deteriorates by the day. But then, no one thinks twice anymore when they see the phrase ‘close proximity’ (a ‘pleonasm’ in grammatical terms), so the disease has even encroached on the groves of academe.

    For all epsilon greater than zero, there exists a grammatical pedant such that for any English paragraph, the difference between its actual and expected quality is greater than epsilon.

  13. @OMF

    I prefer the Ångstrom as a suitable measure of the probablility of Irish Vichy_Bank/Sovereign debt sustainability wrt the conflationist fallacy. Chapter 4, under such a more realistic measure, would then become Chapter 11.

  14. After reading the Fiscal Plan I was casting around for a suitable Greek word to sum it up. Then it occurred to me we had an Irish word already and it is banjaxed. As in we are well and truly banjaxed.

  15. Obvious areas in my mind would be the taxing of certain s.w entitlements.
    My wife is in reciept of maternity benefit at the max rate, which is then paid to her employer who tops up the payment to her normal monthly salary. Yet she is only paying Income tax/USC on the contribution made by her employer..the net effect is a significant reduction in the amount of tax my wife contributes without any loss in G.P

  16. 1) A 50/50 split (rather than say an x/y split) is an exx of the naive diversification heuristic

    2) It is not an austerity package, rather instead a Keynsian stimulus, as it plans to keep spending way more than the govt earns. There remains a structural element to the current budget, a legacy of the fake windfall taxes from the bubble. This overspend, is a stimulus !

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