I took some time over the last few days to go through some real world numbers on stuff (specifically government income and spending) and apply them to Democracy 4. The base country for the game, like with earlier versions, is the UK, and we then edit the data and scripts to better represent other countries as we add them.

Its been about five years since Democracy 3, and a lot has changed, so I wanted to make sure the starting scenario for the UK in Democracy 4 was vaguely realistic. We cannot ever be 100% realistic, because the model is obviously a simulation, and one that has to be fun, plus the starting date of the game is left deliberately ambiguous.

Also… we are not starting every country in the middle of a global pandemic, as that would seem super hard, and also fix the game in time in peoples minds. We DO have a virus outbreak event that is quite severe, but may have to introduce an even more severe global event at some point. Anyway…

I had to make some noticeable changes to the amount that certain things cost in the game. I was amusingly almost spot-on with the cost of the BBC, but the cost of some things like disability benefit, and the NHS in general (State Health Service) were almost comically low. Also. OMG national insurance (payroll tax) brings in a lot of money. I found a great source for this stuff here: https://www.ukpublicspending.co.uk/ Here are some charts:

In this chart the first thing that leaps out at me is ‘other’. 14% of spending! that is a big lump of money going somewhere nebulous. Here ius the breakdown:

Which just goes to show there is clearly a LOT of government spending on tiny, tiny things. Democracy 4 doesn’t really have a ‘fisheries’ department costing anything, or street lighting, but I guess eventually all those little thingsd add up.

The next big scary thing is that 6% of government spending on interest. This is us paying interest on our UK government debt. Some interesting charts:

My immediate response to such a chart is ‘yikes’. People often look at debt to GDP, but if government spending as a chunk of GDP is low (heavily capitalist), the debt/GDP can be low while interest/public spending is massively high. I would suggest that the best metric to look at is interest payments / public spending because this is the opportunity cost of debt, in other words, all the stuff you could be funding if you didn’t have to pay interest on debt. Right now we pay 6%, the same as the defence budget. Just for fun, here is the interest / GDP chart anyway…

Of course we live in times with stupidly low interest rates, although that varies massively by country.

Some economists say as a general rule that countries default (which is economically speaking REALLY BAD) when interest/GDP reaches 12%. If our current interest is 6%, then we need a simple doubling of the interest rate to hit that (assuming we balance the budget tomorrow and stop adding to the debt…)

Democracy 4 does not have an option to default on debt, mostly because that seems unthinkable for the USA, UK, Germany, France and other countries we will likely include. But maybe we should? Anyway….lets move on to look at where government income comes from…

I guess the big surprise here is how tiny the business taxes are. The Uk has fairly low taxes on companies (19%), but then we do not have the more generous and complex system of rebates and exclusions a lot of other countries have. Positech is a company, and we pay a simple 19% of our profits, with the only complication being if we get to claim video games tax relief on some portion of our expenses. We don’t qualify for anything else.

Indirect taxes are surprisingly large. I find the breakdown on that site to be pretty crap, so wen to the independent ‘office for budget responsibility’ and got this instead:

2019-20Percentage
Income tax1195.224.40%
of which: Pay as you earn163.220.40%
Self assessment32.84.10%
National insurance contributions140.617.57%
Value added tax134.616.82%
Corporation tax256.77.09%
of which: Onshore55.36.91%
Offshore1.40.17%
Petroleum revenue tax-0.6-0.07%
Fuel duties28.93.61%
Business rates31.63.95%
Council tax35.84.47%
VAT refunds14.51.81%
Capital gains tax91.12%
Inheritance tax5.60.70%
Stamp duty land tax313.41.67%
Stamp taxes on shares3.60.45%
Tobacco duties91.12%
Spirits duties3.60.45%
Wine duties4.40.55%
Beer and cider duties3.80.47%
Air passenger duty3.70.46%
Insurance premium tax6.10.76%
Climate change levy2.20.27%
Other HMRC taxes47.50.94%
Vehicle excise duties6.30.79%
Bank levy2.10.26%
Bank surcharge1.80.22%
Apprenticeship levy2.70.34%
Licence fee receipts3.30.41%
Environmental levies11.71.46%
EU ETS auction receipts0.70.09%
Scottish and Welsh taxes510.12%
Diverted profits tax0.30.04%
Soft drinks industry levy0.20.02%
Other taxes6.90.86%
National Accounts taxes746.293.26%
Less own resources contribution to EU-3.4-0.42%
Interest and dividends10.31.29%
Gross operating surplus43.75.46%
Other receipts3.20.40%
Current receipts800.1

…which goes to show some very interesting stuff. Mostly…UK tax revenue comes from Employees, Payroll tax, Sales tax and a bit of Corporation tax, fuel duty and business rates. The rest is just the remaining quarter.

So a diverted profits tax (basically the google tax) brings in virtually nothing (0.04%) compared to corporation tax as a whole at 7.09%. It looks like I should be tweaking some of the policies in Democracy 4 a lot.

For example right now UK payroll taxes in the game have a max input of only 25% of income tax, they should be 75%! Tobacco and wine taxes should bring in less than they do, and air passenger duty (airline tax) should bring in MUCH less. Also, maybe I need the UK to start off with a few of these policies already in place but super low. For example, we *do* have a pathetic diverted profits tax and a laughably low level of environmental levies…which is sort of a carbon tax. maybe these need to be implemented but at 1%?

Anyway, I guess the interesting point is that most of us voting citizens who claim to be aware of the world have ABSOLUTELY NO IDEA how much the government owes in debt, what it spends, and where it gets its money. In a pop quiz would you KNOW that (in order) the top 3 sources of UK government revenue is Income tax, National Insurance and VAT? Would you guess that the amount of money we raise each year in corporate taxes is only slightly higher than we pay out in debt interest? (56 vs 52 billion).

I find this stuff interesting, and despair at how badly our press does the job of educating us. We need more stats, more pie charts, more line charts, more numbers, and less pontificating about what an MP said on twitter today.

Maybe Democracy 4 can help focus peoples minds of the actual numbers behind politics?

3 Responses to “Real World Numbers in Democracy 4”

  1. Nicolai says:

    Interesting stuff. I feel like if you were to add the option of default, you’d do the educative aspects of this game a disservice unless you *also* properly modeled the impact of monetary sovereignty: is your country using its own currency? (True for the UK and the US, false for Germany and France) If it is using its own currency, are you trying to maintain a fixed exchange rate relative to some external benchmark? (True for large parts of the developing world, but false for the UK and the US.) Are government bonds mostly held domestically or by foreigners? (By simple accounting math, this is closely related to the cumulative trade balance.)

    A monetarily sovereign government can never be forced to default, but the alternative may be overly high inflation in some cases, so you’d have to model *that* together with the effect it has on people’s happiness.

    Also, interest rate is really a policy variable. One that is currently removed quite far removed from democratic control via central banks, but ultimately the government (via help from the legislative) could change that arrangement. It’s going to take a lot of political capital, but this kind of stuff *does* happen (and there’s reason to believe that it *could* be done successfully if managed well. which of course rarely happens).

    It would be sad to see if Democracy the game blindly bought into the whole “government as a household” fallacy. Democracy 3 mostly avoided the issue in a reasonable way, but if you’re explicitly raising the option of default without also providing some of those alternatives, then you’re building a pretty important political bias into the game, which I think the predecessor managed to avoid quite well. Mind you, if you managed to actually model all those economic effects properly and objectively, that would be beyond awesome.

  2. Cliff Harris says:

    Interesting points. I actually have not yet added the pre-requisite for soverign currency that would allow the helicopter money and QE policy options. Clearly US/UK can do this, but France & Germany cannot (not directly anyway…).

    I don’t directly equate budget of country to household, but money printing definitely has implications. The previous game never handled monetary policy AT ALL, but now we model inflation, QE, Helicopter money, so it should be fine. Someone who wants to leverage the soverign currency ability can freely print money using QE in the game, but there will be impacts on inflation, business confidence etc… actually I need to check that this also has an impact on credit ratings…

    Lets be honest, no matter how the game is designed and what the effects are, people are going to give me grief for getting it wrong and being biased :D This sort of thing will always be very, very difficult to model accurately.

  3. Joe says:

    I think on the expenses side the military should be cheaper. The U.S. in Democracy 3 starts with max military spending of around $250 billion per quarter, which amounts to $1 trillion per year, but the U.S. spends less than that in real life, about $680 billion per year so about $170 billion per quarter. NASA is also too expensive in the game compared to real life, though you could argue it’s not being fully funded right now. And of course, a space agency should arguably be approximately equally expensive from one country to the next, the UK having a space agency shouldn’t be cheaper than the US if they’re both building space stations and have similar labor costs. So while most policies make sense to have them scale based on the size of the country, it doesn’t make sense for a space agency.

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