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Economic Notes
By-Bob-MicKee
Did you see the boom?
The government continues to paint a rosier picture of Britain's economic prospects over the next two years than do the majority of economic forecasting institutes. The Treasury predicts a 3.1% growth in gross domestic product by the end of this year land that includes North Sea oil and gas production) which is on par with the average of the predictions for growth by all the major forecasters. But while the Treasury will only admit to a decline in expansion for 1985 to 2.6%, the forecasters' average predicts only a 2% increase in 1985, and some forecasters expect growth to be well under 2%.
Even if the Treasury is proved right, output in manufacturing will only be restored to 1980 levels by 1985. UK producers continue to lose their share of the home market in manufactures, with manufacturing imports currently rising at over 12% a year.
As for the world economy, the Organisation for Economy Cooperation and Development (OECD) predicts a growth in production for the top 24 advanced capitalist countries of 3.5% this year, but this relative 'boom' compared to the last few years is dependent on the faster expansion of the US and Japanese economies, which are expected to grow at between 7-9% in the two years to the end of 1985. Europe, on the other hand, can expect only a 1½% growth rate per year.
If these production forecasts are achieved what will be the effect on prices and unemployment? The Treasury predicts a fall in inflation to 4% by the end of 1985, but most economic forecasters find this much too optimistic and expect prices to be rising by as much as 6%, some even say nearly 8%. The government refuses to publish any forecast on unemployment! But given the moderate prospects for growth and the continued low levels of profitabilitydespite the improvement in profit rates in 1983 they are still only at the poor 1980 levels - most forecasters predict a continuing (albeit slow) rise in unemployment levels .
On a world scale the OCED predicts 6% inflation during this year, and despite a fall in unemployment in the USA to 8%, the jobless rate will rise to a 12% average throughout Europe.
Many commentators predict that the ever growing balance of payments deficit for the US economy will eventually force down the value of the dollar
on world currency markets, setting up inflationary pressures on all the advanced economies. Further cuts in public expenditure, high interest rates and declining profits in manufacturing would be the result, leading to a new world depression by 1986-7. The 'boom' would be over before we noticed it.
Sea oil and
revenue, oil bona
in decline
The government's own 1984 budget forecasts predict that the revenue going to the coffers of the Treasury from taxes on North Sea oil and gas profits will be more than 20% lower in five years time.
Last year the government received £9000m in revenue and this is expected to rise to £10,000m this year. Thereafter it will decline to around £9000m by 1988/9. The amount of revenue received by the government, assuming tax laws are unchanged, depends on the level of oil prices in sterling, the amount of oil and gas production and the size of investment by the North Sea oil companies. Any decline in these elements will reduce revenue.
Even if the predicted figures are achieved it is clear that the government will find it more and more difficult to continue to use North Sea oil revenues as a major contribution to unemployment benefit and so avoid either increased taxation or further cuts in benefits or other sectors of public spending. Over the next five years, assuming no change in the capitalist economic system in Britain, the number of unemployed requiring finance will increase while government funds to pay for people to do nothing will decline.
North Sea oil and gas revenue. oil bonanza
Third World debt crisis:
World another
The recent riots in the Dominican Republic, following the government's attempts to raise prices across the board by 50%, emphasise the continuing debt crisis for the non-oil producing nations of the Third World, dealt with in the last issue of MIR 'Economic Notes'
Over
people lay
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which came about because the International Monetary Fund would not advance the government of the Dominican Republic loans worth $466m unless the government agreed to pay for all imports from foreign companies at a rate of exchange with the dollar one third below the official rate. That meant that all imports would automatically cost three times as much and the riots followed, but it had no choice if it was to meet its "obligations" . Foreign debts now stand at $2.6bn and a further $800m loan from the international commercial banks is required to meet repayments of interest and advances. These banks would not make the loan without agreement to IMF terms. However as we see, the imposition of IMF terms has backfired on the bankers.
The Dominican Republic is not alone with such a dilemma. The right-wing Jamaican government had made much play of its reliance on the beneficence of the IMF and the bankers in reviving the economy along capitalist lines. But growing debts have forced the government to devalue the Jamaican dollar by 62% since November 1983. This has still failed to satisfy the IMF. Similarly in Guyana, the government is under pressure to meet IMF terms in order to obtain a rescheduling of its $1.3bn foreign debt.
Because Argentina is a much more important economy and because its working-class is a powerful and volatile factor in the deliberations of the Argentine capitalists and their bankers, the government has been able to play brinkmanship with its foreign debtors. The government has refused to pay $650m of overdue interest payements to US bankers, complaining that nearly two-thirds of all its export receipts and 8% of total national production was needed to meet just interest payments on foreign debts! This refusal to pay has already hit US banking profits. But this could be only the beginning.
The bankers are insisting that Argentina agree to an IMF package before they will advance further loans or a rescheduling of existing loans. The new Radical government refuses to agree to a package if it is likely to provoke a social upheaval that could kill 'the goose that lays the golden egg' for capitalism in the country. The bankers desperately search for other ways of regaining their loans while the government desperately hopes for more loans without having to provoke a struggle with the Argentine workers. Watch this space.
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_Taxes and social security contributions as a percentage of gross national product at fac- Tax burden increases worldwide With the decline in the capitalist production of commodities and services over the last decade, the governments of the major capitalist nations have been forced to increase the burden of taxation and social security contributions in order to try and maintain levels government financed of services (without success).
Between 1971 and 1981, the percentage of gross national product taken up by taxes and social serurity contributions rose steadily for all OECD countries.
The tables also show that while the UK is a relatively highly taxed nation, when social security contributions are included, then the UK is only in the middle ranks, thus lending the lie to those Tories who complain that government taxation is a disincentive to the 'enterprise' of high income earners. In fact, the increased taxation burden has fallen much more heavily on the income of ordinary people than it has on companies. As the tables below show, there has been a sharp increase in government demands in Belgium and Italy, with a small decline in the UK after a rise in the mid-seventies. For companies there has been little change anywhere.
Soviet agriculture:
No bread on the table The level of production of agricultural goods in the Soviet Union continues to fall far short of the expectations and exhortations of the bureaucratic rulers of that state. The latest figures on the grain harvest in 1983 show that it fell some 50m tonnes short of the official target of 243m tonnes.
Despite massively increased inputs of capital investment in machines and fertiliser (up to 120% in some areas) harvests had hardly increased at all. Clearly the waste, inefficiency and corruption of the bureaucratic planning methods of state officials continues to stifle agricultural growth. The deputy minister for tractor and machinery building has been fired for corruption, and Gorbachev, the heir apparent to Chernenko, has formed a new department of the central committee for agriculture and food processing in another vain hope to bring about effective changes.
In the meantime the Soviet Union is expected to spend 40% of its foreign currency earnings on food imports during 1984.
TABLE "A"
tor cost.
including social security contributions. 1971 Percentage Sweden 50 Norway 52 Denmark 51 Netherlands 47 Austria 44 Belgium 40 France 40 German Fed Rep 41 United Kingdom 40 Finland 38 , ww Italy Canada Australia United States Switzerland Greece Japan Excluding social security contributions. 1971 Denmark Norway Sweden United Kingdom Australia Finland Austria Belgium Canada Netherlands German Fed Rep France Italy United States Switzerland Japan Greece TABLE "B''
Percentage of total taxation (including social security contributions) derived from taxes on household income. 1976 1971 1981 45 Australia 39 46 41 Finland 38 44 Sweden 43 44 40 United States 33 34 38 Switzerland 36 39 38 Belgium 26 32 36 Canada 34 35 36 Italy 16 20 30 United Kingdom 34 39 30 25 Austria 25 28 28 Netherlands 28 26 27 German FRI 27 26 Japan 22 23 24 France 13 15 15 27 1976 Per- Rank Rank Rank 3 54 2 58 N- 56 1 56 48 4 55 4 51 3 51 5 45 50 9 49 8 8 48 6 5 46 7 10 44 10 9 41 13 13 39 38 1 12 36 1976 1981 32 28 27 Percentage of total taxation (including social security contributions) derived from taxes on corporate income. 1981 1976 1971 Japan 20 18 18 Canada 12 12 12 Australia 16 12 11 United Kingdom 8 5 '
United States 12 12 Switzerland 10 10 Netherlands 7 NON France Belgium 7 Italy 4 German FR Austria Finland Sweden Source: Economic Trends December 1983.
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MIR June 1984;