How much will we owe in 2012?

Ireland’s Debt/GDP reached a record low of 25% in 2006. At the end of 2009, it stood at 66%, as the government went on a borrowing spree to bail out banks while tax revenues plummeted. Our gross debt ratio is projected to rise to 84% by end 2010.

Dan Boyle predicts Irish debt/GDP ratio will pass 100%

Where will it end? Davy, the government stockbroker, expect the ratio to peak at 98% in 2012. [Though it appears Dan Boyle disagrees.].

Last year, Brian Lenihan announced €3 billion in public spending cuts. He plans cuts of “at least” €3 billion this year, and (if his government survives that long) another €3 billion at the end of 2011.

If he manages all that, debt will still rise to 98% of GDP by 2012.

Ireland's debt/GDP

Except, Davy assume a 3% “average real GDP growth rate over 2010-2014”.

So they expect the economy to grow 3% a year while the government take €9 billion out of the system.

That’s some assumption.

Last year, GDP shrank 11%. This year, its stable. But so is a corpse.

The ESRI expects growth of 0.25% in 2010, followed by 2.75% in 2011.

98% is looking optimistic.

But don’t worry. don’t worry. Be happy.

Published by Gerard Cunningham

Gerard Cunningham occupies his time working as a journalist, writer, sub-editor, blogger and tweeter, yet still finds himself underemployed. Go figure.

6 replies on “Confidence in action”

  1. “This year, its stable. But so is a corpse.”
    I understand the motivation behind this point, but the Irish economy is not a corpse. The amount of economic activity happening per person – even if you use GNP, rather than GDP – is still high relative to our European neighbours and very high relative to our history.

    So, if we are to use the body analogy, we should be thinking about someone who took too many steroids, got too bulky and is in some sort of cold turkey, but overall is still in good shape.

    It’s a pity the same cannot be said about the Irish government finances. There, the analogy is closer to an overeater, borrowing to feed their habit.

  2. The analogy was a bit sharp, but the main point I wanted to make was that “stable” isn’t necessarily a good thing. I agree that there are things about the Irish economy that bode well for the future, I just worry that it bodes well for only some sectors – multinationals attracted here by the Great Untouchable, the corporate tax rate, for example – but that’s not much consolation to the thousands on the dole queues, or emigrating. Too much economic management seems to be about the numbers, too little about people.

  3. I’m not a fundamentalist on the Corporate Tax Rate – for example, I had a post last year examining increasing it to 15% [start digression: in fact, when one looks at the effective tax rates, not the headlines, Ireland’s “lead” in this area is significantly smaller than one might think – it seems simplicity of the rate is as important as the rate itself; end digression]…

    … but while the corporate tax rate might not be consolation for those on the dole, we get more tax revenues from it, relative to economy size, than almost any other developed country, so it’s helping to pay their dole. Secondly, it is great consolation to the hundreds of thousands of people in the country who are employed by foreign-owned firms, at least some of whom would not be here in such large numbers if we had a headline rate of, say, 20%.

    On people vs. numbers, obviously I agree that the economy is here to serve the people, but the intermediate step is the numbers – if the country doesn’t get the tax revenues in, hospitals and schools will be affected. As Colm McCarthy would say, we’re short money, not sympathy.

  4. I notice that my comments have been on side points and that I haven’t aired my overall reaction to this post – an excellent post raising a very important topic – so let me do that now!

  5. Much appreciated, thanks.

    I’m not sure how much flexibility we have in changing the corporate tax rate. Possibly the only way to find out is to change it and see what happens, and I’m not clear on how locked in to it we are through legislative commitments in the short term.

    What irks me about it isn’t that its so low, but that even suggesting that we consider raising it seems to be an Unspeakable Evil. And while its simplicity is undoubtedly an attractive feature, surely there should be some way to tie it to employment efforts? How many of the corporations paying into our coffers are here solely as a brassplate on an office door?

  6. Article here from Karl Whelan, http://www.irisheconomy.ie/index.php/2010/10/06/corporation-tax-and-the-efsf/ argues that the problem with raising corporation tax isn’t that it would lead to a short-to-medium term decline in revenue, but that it would lead to a decline in credibility and long-term FDI.

    However, Richard Tol links to a paper on FDI http://www.irisheconomy.ie/index.php/2010/10/05/fdi-in-ireland/ which suggests that FDI doesn’t have much of a trickle down effect to help local companies grow.

    So long term, should we think about refocusing efforts away from attracting FDI to growing a few local multinationals? why isn’t there an Irish Nokia? Or even an Irish Nokia? I’m hard pressed to think of any truly multinational company from Ireland. Maybe Ryanair, but it’s really a British company, and the agrifood businesses (both Co-ops and PLCs) seem to be geared to commodity production, not the creation of international brands.

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