Why do governments in economic surplus not get interest?


#1

I’ve bought the latest version of Democracy. I’m impressed that when the government’s in deficit the debt eats into finances and is even represented on the expenditure pie chart. What I’m unhappy about, though, is that there’s no bonus for spending conservatively. Shouldn’t the government earn money when its finances are in surplus? Afterall, its bank account should be paying it interest for its investment, right?


#2

There was a discussion about this on the forums not long ago. I couldnt find a definitive answer as to what happens. I think in general that when a coutnry is in surplus, it uses that money to pay back previous debts, I’m not sure of any country that has a budget surplus and zero government debt. In theory I guess they would get interest, but I’d imagine the citizens would go mad demanding tax cuts!


#3

There is such a country. It’s name is Norway! :slight_smile:


#4

Norway has a large annual surplus but they still have debt. At the rate of their growth they won’t have debt for long though.


#5

Australia just paid off the national debt in April. The budget surplus will be returned to the public in the form of additional services/tax cuts/barrels and barrels of pork.

I’d say that that is what would happen in any country - the Government shouldn’t be making a profit!!!


#6

Maybe some policies could be implemented for country with reserves - even if it rarely happens in reality, it happens “frequently” in the game.

A nation could invest part of its reserves in another developping country, for example, and have some interest? Or any kind of “one shot investment?”.

Policies, or dilemnas, like a “one shot taxes payback” giving back some money to all the citizens… a dilemna would be great:)

“state Bank activity” policy could also be interesting - the little interest won when having good reserves allowing the state to diminish taxes, or introduce new policies…

In real life, a country with a growing reserve (and no more debt) would face a global “dilemna” on this point: give us back money in a way or another… or we won’t be happy with you.


#7

I guess you can always cut taxes as you approach paying off the debt, that would be the most reasonable thing. When the game was originally designed, stuff like the monorail was put in as a real long term expensive investment that would soak up money like that. I guess whats needed is a separation between the capital investment (ie: build a new airport) and the maintenence costs.
So for example, the Uk could build the channel tunnel using state funds as an investment.
This is the problem with using real countries. Im sure it would be better with fictional ones, where you could have all manner of crazy policies and projects to save up and invest in. Maybe an institute for nanotech research etc?


#8

In real life I would assume that if you have no debt and you want to give back surplus money the best way to do it is to give tax credit to your citizens when they file their income taxes (people get some money back anyway when they do their income taxes but in this case they would just get more money back. :smiley:)

Btw did Australia really pay off all their national debt? According to CIA - The World Factbook their debt-to-GDP ratio was 16.2% of GDP (2005 est.) This is of course a very healthy ratio. I think Australia has the best debt standing in the western world (Australia isn’t in the west but you know what I mean, they’re a Commonwealth country). Australia has a lot of potential to succeed economically. Australia at one point used to have one of the best standards of living with high minimum wages, one of the highest GDP rates and full employment.


#9

yes the debt free thing. Governments like to spin stuff and what they mean is that public debt is zero in net terms ie interest liabilities are matched by interest received on foreign lendings, so no taxes are required to pay the national debt. The gross figure is probably closer to the CIA says.

We do consider ourselves to be part of the Western world, albeit in cultural rather than geographical terms :slight_smile:


#10

This is wrong. I live in Norway. With the high oil price “we” earn a lot. And even before it got high as well. Simply a lot of oil. “Statens pensjonsfond”, the “pension fund”, is worth around 1700 billion (actually milliard in real language) kroner, or 150 billion £. Norway has about 4,6 million inhabitants. A Democracy scenario with this country would be great. Hehe. The main problem would be angry sosial-democrats who can’t stand reformed labour law and lower wages. When the oil runs out or is restricted by radical pollution restrictions, Norway will have a serious problem with its economy, especially compared with new economic powers like China. Another problem is the “politically correct” muslim immigration.


#11

Which part of what I said is wrong? If you look at the CIA World Factbook website it shows that Norway has an impressive surplus.

revenues: $176.1 billion
expenditures: $131.3 billion; including capital expenditures of $NA (2005 est.)
Link: cia.gov/cia/publications/fac … os/no.html

In comparison to the rest of the first world Norway seems to be doing really well financially because of all the oil they are profitting from.


#12

Oh, I was unclear. I meant the statement that Norway has debt. You are actually right about that, but I got the impression that you mean Norway has more debt out than reserves plus “debt in”. That is wrong.

From your link:
“Norwegians worry about that time in the next two decades when the oil and gas will begin to run out; accordingly, Norway has been saving its oil-boosted budget surpluses in a Government Petroleum Fund, which is invested abroad and now is valued at more than $150 billion.”
The petroleum fund is now renamed pension fund.
“GDP (purchasing power parity): $194.1 billion (2005 est.)
GDP (official exchange rate): $246.9 billion (2005 est.)”
“Public debt: 36% of GDP (2005 est.)”
“Debt - external: $281 billion; note - Norway is a net external creditor (30 June 2005)” (“This entry gives the total public and private debt owed to nonresidents repayable in foreign currency, goods, or services.”)
“Reserves of foreign exchange and gold: $43.94 billion (2004 est.)”

Allright, I am not going to discuss economy, as I know less than “the common man in the street” about it.

The pension fund is so large that a minimal state almost could be financed by the interest. Then you may wonder why the state takes like 50% income tax, 24% sales tax, “employer tax” that finances the pensions etc. etc… I think the politicians simply get a kick from having power. :wink:


#13

In the short term this is true, but even Norways oil will run out one day. what then?
I went on a cruise to norway a few years ago, very nice place, glaciers are amazing.


#14

Everyone will get angry because the relatively liberal parties will want to free the economy, and thus “we” will continue to vote for the socialist parties, and we end up as an undeveloped country. :smiley:


#15

I posted a long time ago about the possibility of having a “citizen’s dividend” policy, in which, when you’re running a surplus and have no debt to pay down, the extra cash is automatically distributed to all citizens on a per-capita basis.

Sor, for example, suppose your country has some sort of “publicly” owned resource (like oil in certain countries), and manages to keep expenses down to the point where the government is actually turning a profit. Like any good board of directors, they would turn the profits over to the shareholders, which, in the case of a nationally owned resource, is the citizens at large.


#16

Alberta (Canada) recently did just that.