Spending increases vs tax cuts

kinglear

Anyone copuld have told you that. It just unfortunate noone ever told this government.

RobertD

It all depends upon what the government spends it on. Good quality education or an efficient transport link may have a substantial long term multiplier effect. Five a day and diversity advisers that are the favourite cash dustbins for the current shower only get to a multiplier effect of one because in measuring GDP government output is deemed to be worth what is spent on it. In the real world the value (the net addition to community wealth and happiness) of much of government spend is probably negative.

Ian C

Does this not support the PBR VAT cut or does it refer to Income Tax cuts?

Remembering that in 1981 Howe shrunk the economy into the recession (VAT Rises and spending cuts) and it had fantastic economic effects with some unfortunate but unavoidable social effects. The economic benefits were that it 'uncrowded' the private sector and left them to get on with it - the creative destruction that was necessary.

But that time is still ringing in the country's ears and is still (preposterously) alleged as the root cause of today's troubles by some!

But putting £12bn in VAT cuts back into the economy will help if only by simple virtue of the fact that the Gov't won't have it to waste it - but the trouble will be that noone will be able to tell until long into the future. That's why it was so politically dumb as well as economically uncertain.

If, on the other hand, we were to recognise that now is the time to alter fundamentally the incentives inherent in the tax and benefit system (especially taking those on up to say 80% of average wages out of tax altogether) it would bring forward the day that this slump is over by about a year because it would be very worth looking for work because it would get people who expect to be paid low wages to get entrepreneurial. It's a no brainer and what have we got lose?

RODEST

Brown must have read this article and decided to tinker with increased spending and tax cuts in the hope he would double his return.

Compare Browns policy with Greg Mankiw's theory and you find out why Browns policy won't work. Spending and tax cuts provide a return; borrowing to spend wipes out any expected return and creates further deficit.

Since Brown introduced his 'save the world' policy, lower interest rates have complicated the issue. The finacial sector cannot attract money and are in a downward spiral which also means that government revenue is in a worse state than Brown would have us believe.

The saviour for our economy would be for interset rates to go up after the new year, rising to around 4% by April which would bring money back into the system.

TrevorsDen

"will help if only by simple virtue of the fact that the Gov't won't have it to waste it"

You are absurdity personified. The govt is continuing to spend ... it is borrowing more to fund the tax decrease. The decrease is only temporary. Taxes will rise there after. After the election that is.

This crisis is being milked by the govt. to Browns electoral benefit - he hopes.

JohnAnt

Steinbrueck was absolutely bang on the nail when he ridiculed the VAT cut. It's risibly small, but also entirely the wrong thing to do - a lot of extra government debt thrown at credulous idiots with too much plastic.

Fergus Pickering

Tome the Government policy is startlingly simple and has nothjing to do with economics at all. What do Brown and Darling know about economics? New Labour's vote base is public sector employees + immigrants + people living on various types of social security + mad lefty longhairs. Of course not ALL punlic sector employees are natural labour vote-fodder. There are tory doctors and nurses and even tory teachers (more than you might think) but the army of penpushers are fairly solid. They go into battle with their drawn salaries in their hands (a nice phrase of Dickens I think). So whatever this government does is designed to appeal to these people, never mind the economics or even the bloody common sense of it. But I am sure you all know this. Cameron is never going to get their votes, or most of their votes. He HAS to appeal to the floating lo, maybe ten per cent of the population, and to stop his own core vote, which includes all those to the right of Attila the Hun, manyof whom write on these blogs, from shuffling off to UKIP or the BNP or assorted mad sods, whoever they be, or JUST NOT VOTING. It's a difficult oneand I don't envy him.

Old Hack

Give that man a Nobel!

Ian C

My point, TrevorsDen, is if £12 bn in the pocket of the gov't or ours is the choice, I would rather it was in ours. When you add the other implications of the PBR, I agree with you and was not suggesting otherwise.

This is why I have called elsewhere onthese pages for aw ay to be found for it not to be constitutionally possible for any gov't to get us into this situation ever again.