Friday, 18 June 2010

Borrowing: Government Overstatement?

According to Simon Ward, Chief Economist at Henderson Global Investors, the newly-formed Office of Budget Responsibility is overstating the Government's borrowing projections for 2010-2011. Following George Osborne's decision to use the OBR's 'independent' forecasts instead of Treasury ones, which have a history of being massaged for political reasons, the OBR have announced that they expect the budget deficit to be £155billion in 2010-2011. However, public finance figures released in May are consistent with the deficit actually reducing to £126billion.

I have questioned the independence of the OBR previously. This suggests more evidence that the figures are still being massaged, only this time to make it look like it's worse than it actually is. Is this an attempt to politically point-score against Labour? Or is it an attempt to justify unnecessary fiscal tightening?

My personal opinion is that the deficit should not just be reduced, it should be eliminated. And that it should be financed entirely by spending cuts, not tax rises. This is reinforced that, according to the World Bank, in 2008, tax revenues accounted for 29% of GDP, the highest in the developed world.

But decisions on spending cuts should be driven by the requirement for value for money for the taxpayer, and a debate on what services should actually be provided by the State in the first place. They should not be made for ideological reasons.

Christ, I sound positively socialist. Time for a drink.

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