Sunday, August 14, 2011
Mike Butler: Understanding deficits
The U.S. 2011 Federal Budget annual spending: $3,820,000,000,000 ($3.82-trillion)
Income: $2,170,000,000,000 ($2.17-trillion)
New Debt: $1,650,000,000,000 ($1.65-trillion)
Amount Cut: $38,500,000,000 ($38.5-billion) – about 1% of the total budget.
Senior Democrat Party senator Harry Reid called this an “historic amount”. The Democrat President Barack Obama said it was a “historic deal”. The Republican Speaker of the House of Representatives, John Boehner, simply said, “We’ve come to an agreement”.
Comment from the blogosphere came from American Tom Cutts, who wanted to put this in perspective, saying “it helps me to think about these numbers in terms that I can relate to.” He removed nine zeroes from those numbers and pretended this was monthly household budget for the fictitious Jones family.
United States Jones family monthly budget
Amount of money the Jones family spent this month: $3820
Total income for the Jones family this month: $2170
Amount of new debt added to the credit card this month: $1650
Outstanding balance on the credit card: $14,271 (This represents the United States national debt).
So last week, the Joneses sat down at the kitchen table and agreed to cut $38 from their monthly budget. “An historic amount!” Are you impressed? Cutts asked.
So how is the New Zealand government coping in the current financial turmoil enveloping national and local governments around the world, as a result of their reckless overspending? Here are details from this year’s Budget:
New Zealand core Crown expenses 2011: $72.8-billion
Core Crown revenue: $57-billion
Operating balance between gains and losses: -$16.7-billion
Gross sovereign issued debt: $71.6-billion
Let’s remove the “billion” from those numbers and pretend this is a weekly household budget for the New Zealand cousins of the fictitious American Jones family. I opted for a weekly budget instead of monthly because it is easier to translate the numbers thus:
New Zealand Jones family weekly budget
Amount of money the Jones family spent this week: $728
Total income for the Jones family this week: $570
Amount of new debt added to the credit card this week: $167
Outstanding balance on the credit card: $716 (This represents our gross sovereign issued debt, which is debt issued by the core Crown including Government stock held by the NZS Fund, ACC and EQC).
By comparison, the New Zealand government would seem a lot less burdened by debt, therefore nowhere near the dire straits that the United States government is in. Nevertheless, the numbers are still going the wrong way and a problem is growing under our noses.
One other point to note is the difference in the size of the two governments in relation to the gross domestic product or GDP (the market value of all final goods and services produced in a country in a given period) of the two nations. Total annualised government revenue is equal to 14.8 per cent of GDP in the United States while New Zealand's core crown revenue is 28.9 per cent of GDP.
at 3:26 PM