As the Telegraph reported:
Share:Lord Myners, the former City minister, last night criticised Gordon Brown’s administration for living beyond its means and said he had been frustrated by his colleagues’ “flawed thinking” on the economy. “There is nothing progressive about a government that consistently spends more than it can raise in taxation,” he said.
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3 Comments
Of course what Lord Myners said is the merest common sense, yet it is a lesson that never seems to be learned by many self-styled progressives and indeed most British governments.
Bond market discipline is not the only reason for seeking to limit public borrowing – although it is often only the threat or reality of rising bond yields that makes governments wake up to the need.
There are other reasons: high levels of government borrowing can crowd out private savings and investment and impose burdens on future generations of taxpayers. There was never anything progressive about either of these effects.
There is no necessary connection between balanced budgets and a low spending-to-GDP ratio – the likes of Sweden and Denmark ran budget surpluses during the good years at a higher level of revenues and expenditure than the UK, while we ran structural deficits.
However, the tendency for structural deficits to coincide with periods of high public spending in the UK does suggest that governments resort to routine deficit financing (I’m not talking about fiscal stimulus or recession-induced deficits here) when they know they’ve reached the limits of what the public is prepared to pay for through taxation.
Fiscal rectitude should not be the preserve of the political right (and indeed isn’t in much of the rest of the world); it’s time progressives of all party stripes grasped this and – rather than reluctantly backing the minimum fiscal tightening we can get away with – advocated an ambitious programme of fiscal consolidation to be sustained after the immediate ‘repair work’ is done so that we are better prepared going into the next downturn.
This could take various forms, but I would say the rule of thumb should be to balance the budget in normal times and to run structural surpluses for some time after 2015 in order to get debt:GDP down to pre-crisis levels.
A nice soundbite summing up Labour’s financial incompetance that will no doubt be featured in many a Focus!
Alex Sabine said “Fiscal rectitude should not be the preserve of the political right (and indeed isn’t in much of the rest of the world)”
Indeed it is not. In the USA, the right have been the worst at running large budget deficits: cutting taxes while raising spending. GW Bush was the worst, but Reagan did it too.