Budgets, surpluses, deficits
 

Some pointers that running surpluses across a 'normal cycle' aren't necessary, and this is more cynical politicking from the Chancellor at the expense of proper management of the economy.

http://www.ibtimes.co.uk/margareta-p...-money-1505574

Osborne cited Sweden as a country that is using the policy - Sweden actually have started looking at rolling it back to a balanced budget only, not a surplus, to provide room for investment.

http://uk.reuters.com/article/2015/0...0OP2KW20150610

I'm aware one poster at least seems to struggle with the concept of outstanding debt as a share of GDP. It's easy. I make £50k a year and owe £15k. You make £25k a year and owe £10k. I owe £5k more than you, but you owe way more relative to your income. I'm more able to service the debt, doesn't matter that nominally I owe more.

In another example we both earn £50k and owe £30k.

I run a balanced budget, through investment my income goes up by 2% to £51k a year and I still owe £30k. My position has improved even though my debt hasn't reduced. You run a surplus of 1% and now owe £29,500, however your income has remained static at £50k due to lack of investment. These numbers aren't unrealistic, they're kinda where economic growth was in 2010.

My debt to income is 58.82%. Yours is 59.0%, both having started at 60%.

Yep. I spent more, earned more, and am more able to service my debts. This effect is further amplified by inflation eroding the debt, while GDP tends to be measured in 'real' inflation adjusted terms but I'm leaving that out for simplicity.

This is a huge part of why the deficit was so stubborn in the first 3 years - economic growth was slowed here a ton while in the USA they carried out a huge stimulus.

The IMF who the Chancellor claims think he's awesome are warning against cutting deficits too quickly.

As it is we're going to get a replay of the last 5 years - 3 years of cutting as rapidly as possible, followed by 2 years of increased spending to try and make the numbers look better, and perhaps some electorate bribery to try and buy the election.

Sweden wants to save less to invest - this is a country whose tax burden is about 15% higher than ours. Perhaps we'd be better off following them and simply committing to balanced budgets, giving us an extra £18 billion a year to build transport infrastructure, schools, hospitals, housing, etc.

Building transport will save money in other ways, building housing will bring down the housing benefit bill, building schools improves our economic efficiency and productivity.

The Chancellor is a great, if slimy and untrustworthy politician. Sadly he's also a crap economist, not that surprising from a history graduate.

It'll be interesting to see if his continued inflation of the housing market offsets the bite of austerity over the next 3 years. It wasn't until 2013 when the housing market juice really kicked in last time around.

Re: Budgets, surpluses, deficits
 

except things aren't always so straightforward, and spending money doesn't guarantee additional growth - if it was that easy we would all do it and all be millionaires

what if your investment had collapsed - remember investments can go up or go down suddenly your still on 50k with increased debt, what if you lost your job and only managed to get a new job at 45k

What you are showing is what happens if it works .. if it doesn't work then you find yourself up the proverbial creek

a bit like all those of us who bought endowment mortgages in the 80's - it was seen as stupid to pay off the money you owed, it was a much better idea to invest the money and then pay off your mortgage with the massive profit you would make and then walk away with a cash lump sum ..... of course then the endowments stopped performing and people were left with underperforming endowments that wouldn't clear their mortgages

Re: Budgets, surpluses, deficits
 

If the UK public deficit and borrowing was for investment purposes only, then it should be easy eliminate any deficit virtually overnight. Instead the surplus and borrowing went on ongoing(eg tax credits) and long-term(eg repaying PFI) spending and that cannot be simply stopped "overnight".

Re: Budgets, surpluses, deficits
 

It was a simplification, but no worse than the nonsense about running a country's finances like those of a household.

Countries can do this amazing thing where they don't have to go to the boss and ask for a pay rise, they can increase their competitiveness and market forces do it for them.

Or they can do nothing and market forces take money from them. As they have to an extent already in London due to some missing infrastructure.

---------- Post added at 15:36 ---------- Previous post was at 15:34 ----------

Way to miss my point :)

It wasn't a party political post so why you're bringing Labour's actions of the past into it is a little confusing.

I am questioning why the Chancellor is seeking to bind this and subsequent governments to a 1% surplus rule when it would seem to make more sense to run a balanced budget.

To run that balanced budget means a current budget in surplus, so your point is irrelevant, as are the actions of the previous couple of administrations (the last one traded investment for higher current spending in some areas too).

Re: Budgets, surpluses, deficits
 

It's obvious politicking. It's stupid to constrain chancellors like this and Osbourne himself isn't exactly too concerned with borrowing especially when the rates are so low. It's also not really possible as you can't constrain further parliaments - there is no mechanism with which to do it. Obviously it's politically awkward to revoke the law but if needs must then so be it. Hell it might not even last the Parliament if any hiccups should occur in the meantime and the chancellor feels he needs to use the full range of actions available to him including ones he has short-sightedly sacrificed for political gain.

It's like when Labour introduced the 50p tax just so they could accuse the Tories of giving them a tax cut when they revoked it. It's a trap for the opposition is all.

Re: Budgets, surpluses, deficits
 

These articles agree with a lot of the OP points re: borrowing to invest:

Five ways George Osborne will fail the next generation

Academics attack George Osborne budget surplus proposal

Re: Budgets, surpluses, deficits
 

From the first article, it would seem he has reached an outcome, and looks for information to back that up... Another possible conclusion is the bond market may have dropped if Labour won.....

Re: Budgets, surpluses, deficits
 

Meh, it's all good. By 2020 private debt is forecast to hit new highs of 170% of income, and will continue to rise as, even if our economy is in balance domestically, we have a nice big balance of payments deficit which, with the government running surplus, will have to be financed by the private sector.

Sorry if this bursts the bubble of there being a magic money tree. If government are running a surplus and balance of payments is negative the private sector is running a deficit. Clearer far smarter for us to fund it than the government, right?

Re: Budgets, surpluses, deficits
 

Markets usually factor in uncertainty as early as possible (then you can profit selling early while everyone else scrambles on election day). Meaning it would have been considering both possibilities before the election and then shifting to knowing the result for certain. So either they were confident they knew the tories were going to win or it made no particular difference who won.

Re: Budgets, surpluses, deficits
 

The equity markets went up the day after the election (or the Monday, I forget) so they had priced in a period of uncertainty previously. The bond markets are different and they probably assumed those were safe irrespective of who won. After all Interest rates are decided by the BoE and we're not likely to default on debt anytime soon even if Labour had won.

Re: Budgets, surpluses, deficits
 

For all the nonsensical rhetoric from the Conservatives under all sets of plans put forward by the major parties debt as a proportion of GDP would've been going down by 2020.

There was no massively profligate spending on offer anywhere.

These were of course just plans. We were supposed to be running a balanced budget by now already, then the reality of what happens when you cut investment for purely political purposes set in and things changed.