The targets are discussed before indicator terminology in this element because they are necessary for understanding some of the indicator terminology. Enterprise development and socio-economic development use the same methodology for calculating the target. The calculation is not clearly articulated in the Codes and is a technical calculation. Read the rest of this entry »
As mentioned above, the target is calculated on the same basis as that of enterprise development. The calculation is not clearly articulated in the Codes and is a technical computation. To avoid repetition, the following constitutes a brief summary of what was communicated under enterprise development.
The target for socio-economic development is 1% of net profit after tax (NPAT). NPAT is easily manipulated through accounting entries, so the Codes use an anti-circumvention approach, outlined below. Read the rest of this entry »
Suppose, for example, that the GDP growth rate exceeds the interest rate by five percentage points. Then the steady-state deficit-to-GDP ratio will be 5 per cent of the debt-to-GDP ratio. If the debt-to-GDP ratio is at, for example, 60 per cent, then the primary deficit-to-GDP ratio can be permanently maintained at 3 per cent. Incidentally, these figures are the same as those stipulated in the European Union Maastricht Treaty as ‘convergence criteria’ for debt and deficit. Note that if the GDP growth rate exceeds the interest rate by five percentage points, then no less than one-fifth of the public sector in our ’small government‘ example, and one-tenth of the ‘big government‘ example, can be permanently financed by allowing the government debt to grow continuously. Taxpayers would be relieved accordingly. Read the rest of this entry »
