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
Quote:
Portes said it was a good idea to have independent oversight of government budget policy, but that it was not necessary to run an outright surplus, as economic growth should ensure outstanding debt fell as a share of GDP.
Targeting a surplus would make it hard for the government to invest - even where projects promised returns greater than the cost of borrowing - and would encourage politicians to focus on gimmicks to achieve a surplus each year, rather than on longer-term economic challenges.
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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.