The national debt is getting smaller. In the last year or so there has been a net decline in the level of the debt in absolute terms and budgetary forecasts for the next few years suggest this will continue. The first year the Government ran a surplus of income over spending was 1998 - prior to that it needed to borrow money to balance its books and a little bit was added to the national debt.
It is only when the Government generates a surplus that any sort of fall-off in the size of the national debt can be seen, says Mr Gerard Cahillane, senior treasury manager in the strategy and risk unit at the National Treasury Management Agency (NTMA) which manages the national debt.
"The national debt is really an accumulation of budget deficits," he explains. "Once you run surpluses you obviously reduce your national debt, other things being equal." The prospect is that it could decline a lot more, says Mr Cahillane.
But how far could it continue? Could it ever reach zero? According to Mr Paul Sullivan, director of risk and financial management in the NTMA, it is not necessarily per se a good or bad thing to have debt. "There is nothing that says we should aim for zero. It is just like saying should you or a company aim for zero indebtedness. It all depends," he says.
It's a question of what the money is being used for and the capacity of the economy to service the debt. If the expenditure is going into infrastructure and increasing the productive capacity of the economy that's great, he says.
There is no absolute right answer about what the level of debt should be, whether it is too high or too low. Mr Sullivan compares it to the financial circumstances of an individual. "There is nothing wrong with having debt. The question is if you start to have too much debt, that's when the problem will start."
There has to be some idea of the trigger points that will indicate taking on too much debt and the debt/GDP (Gross Domestic Product) ratio is used as an international convention to give some sense of the level of affordability of debt. "The GDP is in some sense the capacity of that particular economy to generate wealth and in that sense the capacity to service debt," explains Mr Sullivan.
The indebtedness figures are generally reported in two ways - the actual value of the debt and a relative measure eg GDP. The debt/GDP ratio has been falling for a long period of time and was below 40 per cent at the end of 2000. It is expected to fall further this year and next. The measure used in the EU for comparison purposes is general government debt as opposed to national debt. National debt is the debt of central government. General government debt includes borrowings of State entities such as local authorities and non-commercial state bodies.
The national debt was £28,755 million (€36,511 million)in 2000. General government debt was £31,537 million in 2000, which is a debt GDP ratio of 39 per cent. This is a far cry from the 1980s when the ratio was around 125 per cent, dangerously high.
The forecasts for 2003 puts the general government debt at £26,155 million, a debt GDP ratio of 24 per cent. The outlook for 2001 and 2002 is 33 per cent and 28 per cent respectively. One of the famous economic criteria for qualifying for European Monetary Union was a debt GDP ratio of not greater than 60 per cent.
That was a stretch for Ireland at the time. But now we are heading for almost half that level, underlining our new status as one of the lowest indebted countries in Europe to boot.
What is so special about the national debt? Mr Sullivan believes that because "there is a lot of zeroes hanging around the place there can be a tendency for it to take on a bit of a mystique". But fundamentally it's not any different to the debt of an individual or corporate entity. "It's debt accumulated - the difference between what your income is and what your expenditure is. The basic principles really relating to it therefore are really no different."
The main difference between an individual and a Government dealing with debt is that an individual may not have the income to repay the debt accumulated whereas the Government always has the tax system to lean on. In terms of the affordability of the debt, the proportion of the tax levied by the Government absorbed by the annual interest payments on the national debt has decreased.
Lower debt financing "has freed up a huge percentage of Government revenue to be used either to finance tax cuts or to facilitate health or infrastructure expenditure, whatever it may be. It is a very dramatic drop in the percentage of tax revenue that is being used to just pay interest," says Mr Sullivan.
Less interest is being paid, interest rates have come down, tax revenue is going up because of the growth of the economy and the debt has come down. The actual tax bill has fallen in absolute terms so the advantages are from all sides.
The trend in the average interest cost of servicing the national debt has fallen from 8.6 per cent of the national debt in 1991 to 5 per cent in 2000. Interest as a percentage of tax revenue accounted for more than a quarter in 1990 and 1991 falling by a few percentage points each year to 7.6 per cent in 2000.
The NTMA tries to structure the debt in such a way as to achieve the lowest cost for the Exchequer, for the taxpayer over time. It keeps a close eye on managing the financial risk of the debt, which is subject to fluctuation.
"Our job is to try and agree or put in place a debt structure that is fixed rate versus floating rate, long term versus short term, that looks to get the cheapest funding while containing risk," concludes Mr Sullivan.
In the same way, some - but not all - individuals often go through similar thought processes when paying back personal loans or mortgages. For the NTMA it is on a grander scale and involves consideration of technical aspects of the markets. A complicated decision process is involved to make sure Ireland can access funds as cheaply as possible.
