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Victoria 3 - Dev Diary #12 - Treasury

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Hello and welcome to another development diary for Victoria 3! Today we’ll be covering a topic that tends to be very much in the mind of governments of all eras: Money! Specifically, we’re going to be talking about income, expenses and debt, and how they function on the national level.

As was mentioned all the way back in Dev Diary #2, Money is one of the principal resources you have to manage in Victoria 3. This in itself is of course nothing new (money of some form playing a role in almost every Grand Strategy game we’ve ever released), but the way money works is a little bit different than what you might be used to.

In most games, money tends to be a resource you accumulate for a specific goal, until you have enough of it to achieve that specific goal. For example, you might want to build a building that costs 100 money, and your monthly income is 10 money. That means in order to build said building, you have to wait for 10 months to accumulate the 100 money needed for the lump sum cost to order the construction of said building.

Now, you might be asking, why am I explaining such a simple and obvious mechanic that undoubtedly every single reader of this dev diary is completely familiar with? The reason for this is because in Victoria 3, there is no such thing as a lump sum cost - instead, it’s all about your weekly balance. At the end of every in-game week, your country’s income and expenses are tallied up and the result is then applied to your Gold Reserve or National Debt. This also means that all forms of expenses, such as construction, also work on a weekly basis - you do not need any cash ‘on hand’ to start construction of a dozen buildings at once, but if you don’t have the revenue to support it you may find yourself quickly going into debt.

America’s lack of an income tax in 1836 sharply limits its potential for government spending
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The Gold Reserve is your country’s national stockpile of cash. If you are free of debt, any money that is left over in the weekly budget after expenses are subtracted is used to increase the Gold Reserve. Conversely, if your expenses exceed your income, this money is taken out of the Gold Reserve to balance the books.

Though it’s certainly never bad in itself to have a sizable Gold Reserve, it isn’t necessarily the best idea to continually run a large budget surplus - each country has a Gold Reserve Limit, which is a ‘soft-cap’ over which each surplus pound has diminishing returns on the Gold Reserve - if you have an enormous stockpile of gold, a surplus of £10k may only increase your stockpile by as little as £2k, meaning that you’ve simply wasted the rest of your money. Hence, a country that finds its gold reserves filling up may want to consider finding a way to reinvest some of that money to avoid such wastage.

The Spanish Gold Reserve has grown to the point where further stockpiling is becoming very inefficient, and they should really try to find better uses for some of that money
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So what if you’re running a deficit and your Gold Reserve has all been tapped? Well, this is when debt comes into play. Beyond that point, each pound spent in excess of your income will result in automatically taking on debt. While this may sound like something that you should avoid at all costs, that isn’t necessarily true.

While you do have to pay interest on your loans, interest rates in Victoria 3 are relatively low, and so long as you avoid hitting your Debt Ceiling, growing your economy through deficit spending can actually be a very valid strategy. This is because the increase in revenues from minting and taxation may very well end up exceeding the interest payments, not to mention the benefits constructing new industries can have for your population.

The Debt Ceiling, unlike the Gold Reserve, is not a soft cap - once you hit it, your country will be in default, which is a terrible state to be in and can only be recovered from if you manage to slash your expenses enough to put your weekly expenses back in the black (or if another country steps in and takes on your debt, which can have its own undesirable outcomes for you… but more on that later). It’s also possible to simply declare bankruptcy, but because the money you are borrowing against is actually the cash reserves of your country’s buildings (which is actually what determines the size of your Debt Ceiling), this will have immensely negative consequences for your domestic industry.

Even though Britain has taken on several million pounds of debt, this isn’t too much of an issue - their advanced economy allows them a high debt ceiling, and the interest payments is only a small fraction of their spending
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To wrap up this Dev Diary, I’m going to briefly touch on the main forms of income and expenditures, though this is by no means an exhaustive list! Some forms of income and expenses (taxes and salaries, specifically) also have a ‘level’ setting, where you can for example squeeze more taxes out of your population at the cost of reduced legitimacy and increased radicalization.

A massive hike of the tax level to the highest level is a sure-fire way to both raise money and create political radicals
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Main Types of Income (not an exhaustive list):
  • Minting: All countries can generate some cash flow by printing or casting new currency in relation to their GDP. Minting provides all countries with some income - particularly those who have domestic Gold Fields - but is in itself insufficient for funding anything but the most minimalist of governments.
  • Income Taxes: A form of taxation collected on income, where a certain % of the wages paid to workers in buildings is paid to the government.
  • Poll Taxes: A form of per-capita taxation where a fixed sum of money is collected on each member of the workforce. Poll Taxes are very regressive since they collect the same amount regardless of income.
  • Land Taxes: A special type of Poll Taxes that are only collected on certain types of Pops, such as Peasants.
  • Consumption Taxes: A tax that is levied directly on a specific good that is consumed by Pops. Levying Consumption Taxes costs Authority.
  • Dividend Taxes: A tax that is applied to dividends paid to Pops with an ownership stake in a Building. Tends to be a very progressive form of taxation, as usually only well-to-do Pops have ownership of buildings.
  • Tariffs: Tariffs are something that we plan to have in the game as a way to profit from goods being exported from your market, but we’re not ready to talk about exactly how this will work yet.

Main Types of Expenses (not an exhaustive list):
  • Government Wages: The salary cost of employing Pops in your Government Buildings such as Government Administrations and Ports.
  • Government Goods: The material costs for your Government Buildings, for example the Paper needed by Government Administrations.
  • Military Wages: The salary costs of Pops serving in your army and navy.
  • Military Goods: The various goods needed by your army and navy, such as Small Arms for Barracks.
  • Subsidies: The cost of subsidizing specific buildings to ensure they remain competitive.
  • Interest: The cost of making interest payments on your loans, if you have any.
  • Construction: The cost of constructing new buildings, both in goods required for the method of construction and wages paid to Pops working in the construction industry.

Well then, that’s all for today. Next week we’re going to be talking about a topic that touches on both economics and politics - Standard of Living. See you then!
 
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I would think it's unrealistic. A Nation doesn't marginally change its taxes based on the effects of day-to-day life. They don't go from a 12% tax to a 12.3% in order to balance the budget. Along with the fact that a slider is too immediate, and governments rarely ever work that quickly in reaction to an economic incident
It feels like another big advantage is that these changes are explicit events and the populace can then respond to those events (like a hit against legitimacy, specific radicalization).

This could be done with sliders but would still need a "confirm" type of button, with restrictions on how frequently taxes could be changed.

(To be clear, I'm not bothered by lack of sliders. A lot of how Vicky 2 dealt with taxation bothered me starting from, at the beginning of the game "100% tax rate is fine because it's obviously only taxing people 20% of their income due to inefficiencies")
 
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Where does the money you pay out in interest on your debt go? Does it get paid out to rich POPs in your country who hold government bonds? That would be a cool bit of gameplay that would let you do some trickle down economics as a liberal government.

It also matches Alexander Hamilton’s motivations in why he wanted the federal government to take over state debt. Instead of rushing to pay off the debt, like Massachusetts did after the Revolution (helping to trigger Shays Rebellion), Hamilton wanted to keep the debt permanent. This would create a permanent bond holder class that would be: 1) loyal to the federal government, increasing the state’s power and legitimacy and 2) able to invest interest payments back into the economy, spurring industrialization.

His scheme didn’t last, as the Democratic-Republicans started to pay down the debt when they took power. But I’m curious if the player can do something similar in Vicky 3.
 
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Sounds very promising - I just hope that Vic3's world economic system is understand by the AI and more robust against getting out of hands - honestly, the read of Vic2's wiki article about loans and how the available money tends to disppear from circulating by ending up in too few hands was one factor deterring me from ever getting into this game.
 
Is debt paid periodically or does it require player action?
So long as you have a positive balance you will continually pay off the national debt using that surplus.
 
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Could we have internal tariffs and all kinds of priviliges and exemptions for backward nations like Russia? Could be very interesting gameplay to try to reform it throughout the game or leave it intact.
 
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I am disappointed by the five-buttons in order to represent taxes and I don’t at all follow the reasons given for the absence of sliders.

- Sliders can be locked after usage.
- Sliders can have a limited gradation (say, by 5% jumps)

As things stand, we WILL be adjusting our taxes periodically in order to not have a too big income/expense, whereas we could just set a more reasonable rate and have it passed as a law, like what usually happens in real life.

With the absence of political parties, it’s one big gripe I have against the design right now.
 
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There is 5 levels but that doesn't mean there is 5 options, there's a wide variety of different income streams that affect pops differently instead
I notice that your income tax seems to hit poorer strata more.

Is taht because poorer people tend to have their income be specifically from taxes while richer people not? Or is it possible to specify via some other means different levels of flat tax, progressive tax, etc?
 
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I have a lot of questions on how domestic sources of credit and domestic borrowing works. Can you elaborate or is that for another DD?

1) Is domestic sources of credit limited to industries (that is what is listed)? Why not POPs too?
2) If you do borrow from domestic sources of credit, do they get paid the interest?
3) If you borrow from industries, then what happens if the industry goes into a downturn and needs that cash?
 
At the moment we don't have this for most countries, I'm split on the idea in that it would be a nice historical detail but at the same time having countries start the game in a dire financial state may not feel good gameplay wise.
I think it would be great to have some, maybe as a game rule if it’s possible? Im sure players would like the challenge of trying to rescue Countries out of their dire financial situation and the feeling of leading them back to the black.
 
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I notice that your income tax seems to hit poorer strata more.

Is taht because poorer people tend to have their income be specifically from taxes while richer people not? Or is it possible to specify via some other means different levels of flat tax, progressive tax, etc?
It's because the income tax law (Payroll Taxes) is a regressive form of taxation, there are also flat and progressive forms.
 
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I think it would be great to have some, maybe as a game rule if it’s possible? Im sure players would like the challenge of trying to rescue Countries out of their dire financial situation and the feeling of leading them back to the black.
That is actually not a bad idea, no promises but I'll note it down as something we might do.
 
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Is starting in a dire financial state really any different than starting in a dire geopolitical state? Like, Byzantium starts off in a very bad place at the start of eu4 and tons of people play them. “Start with a cool nation at the bottom of a very deep hole and try your best to get out” is a pretty common play style for a lot of paradox fans.
Hell, you could say the same about starting off in a dire state with regards to literacy rate or industrialization or whatever. Half the fun of Turkey in vicky 2 (especially with mods like HPM) is desperately trying to stay a great power despite your horrible economy and literacy making it very hard to afford the army and navy you need in order to deal with Russia, and every army tech you research being a industry, economy, or culture tech you have to put off researching.

I fully agree with this. One of the most fun aspects of Paradox games, when compared to other strategy games, is the inherently asymmetry of gameplay. It is also half of where the replay value comes from, even if the mechanics themselves are identical, the starting situation changes how you need to play a lot. I do think there might be some value on some special game rules to have countries, or even just your country, start with parity in one or more areas of the game (be it debt, literacy and what else). In fact, I think this could be used as a form of tutorial mode, remove the starting debt of a player to allow them to learn the game without having to worry about that initial problem. But for the default experience, I think Paradox games are at their best when they embrace asymmetry.
 
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I like this a lot, despite having some questions about how tariffs are represented that I’ll save for a later dev diary. It’s a much more realistic take on the real constraints on government spending than representing the country as having a bank account and saving up its budget surplus to build things.
 
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Though it’s certainly never bad in itself to have a sizable Gold Reserve, it isn’t necessarily the best idea to continually run a large budget surplus - each country has a Gold Reserve Limit, which is a ‘soft-cap’ over which each surplus pound has diminishing returns on the Gold Reserve - if you have an enormous stockpile of gold, a surplus of £10k may only increase your stockpile by as little as £2k, meaning that you’ve simply wasted the rest of your money. Hence, a country that finds its gold reserves filling up may want to consider finding a way to reinvest some of that money to avoid such wastage.

Does this soft cap correspond to any economic phenomenon in real life, or is it just something introduced to incentivize spending in the game?
 
Amazing, love all the options. But, on tariffs, did you mean to write exported to your market rather than from? Otherwise you’re talking about some kind of export restriction, which just isn’t a very common thing when compared to tariffs.
 
1. Only tariffs on exports? Or will you be adding tariffs on import as well? Or would that be impacting your own pops too negatively to be worth it?
2. I'm a big fan of sliders to min-max my income and expenses. What is the reason you chose to implement buttons for each level instead of sliders?

Good to see deficit spending might be a viable option to grow the economy.
I like this. Well done.
 
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