Magazine article Public Finance

Growing Pains

Magazine article Public Finance

Growing Pains

Article excerpt

You can grow your way out of recession; you cannot cut your way out,' warned the chancellor as he outlined the governments spending plans in this week's Budget.

And, in many respects, this is true. Keynesian arguments have generally won the day across the worlds major economies. Cuts are out and fiscal stimuli are in - at least in the very short term.

Alistair Darling was therefore able to delay the inevitable pain coming the way of the public services. Spending growth will be relatively buoyant until 20 1 1 - particularly for health and education - and thereafter will shrink to an annual average of only 0.7%.

It might be delayed pain, but that will not make it any the less uncomfortable when it does arrive. The 0.7% growth figure, compared to the 1.2% promised in November's Pre-Budget Report, represents a significant reduction in planned revenue spending.

The chancellor pulled a crowd-pleasing new 50% tax rate for high earners out of the hat, but this is unlikely to fill the fiscal black hole. In fact, the Centre for Economics and Business Research believes that the tax hikes on the rich will actually reduce government revenues rather than increase them (see news on page 6). …

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