Bitter losers and winners 2013 Budget
Wednesday, March 20, 2013
Office For Budget Responsibility forecasts for the economy in 2013. The Treasury's Budget details are here.
Politicshome's live Blog showing that hell hath no fury like pressure groups scorned, with plenty of useful links to early comments on The Budget.
Evening Standard's coverage here, it managed to pre-empt the Chancellor's statement.
i do not believe austerity will work for a large budget deficit. Only iff there was a minor deficit then austerity can be applied.
ReplyDeleteCurrently, with such a large deficit a decrease in government spending will NOT benefit the UK. The tightening fiscal policy will lead to a fall in AD and lead to lower economic growth. It's ironic as this policy, to reduce the budget deficit, will actually reduce tax revenues as well. If spending gets cut it will lead to unemployment; this will cause the government to pay more benefits and in return lower tax revenues. This concludes my say that the deficit will only experience a small reduction; it won't help in this case as the deficit is huge.
In my opinion,i think government spending should increase. They're already in one of the worst deficits, they might as well make use of it to continue using that money BUT more wisely. Interest rates from borrowing can be considered a consequence of the deficit as at least some sort of consequence will have to be faced sooner or later.
The government should increase human capital and provide sufficient health care to the middle and lower class. Examples such as these spendings can increase confidence. In the end, consumption is the biggest component of the AD and it should be most concentrated on. Without confidence of consumers and businesses, the economy will only be seen to suffer more. I think the government should put consumers first as a priority when taking decisions and continue their spending based around them as eventually, confidence is bound to increase (needs patience and time). The decrease in spending will only restrict consumers and businesses more to a point where confidence is unable to increase and can't save us from this deficit.
good work Maria, you explain your thoughts well and use sound economic analysis to justify your thoughts. I look forward to seeing what others say....well done.
DeleteI partially agree with your analysis of the negative effects of austerity. However, I think that your argument about "they are already in a deficit, they might as well spend more" is very reckless and deeply flawed. Fiscal stability is essential for the long run prosperity of a country. Therefore your advocation of "spend more, but this time we'll do it more wisely" cannot be more disturbing because it is the government's living beyond their means which got them into this fiscal mess. Furthermore, on your point about "spending more wisely", what do you mean by that? Mal-investments of the public sector did not yield returns but only broadened the deficit which means that more of the same can only worsen the situation.
DeleteIn my opinion, we should cut both tax and spending. Even though in the short run there might not be much impact, it will improve the fiscal position in the long run because cutting spending would free up resources to be used more efficiently and unleash the productive activities of the private sector, as less crowding out and record low borrowing costs would favour investment. This should in the long run lead to an increase in tax receipts. Moreover, cutting tax would complement this policy by reducing the burden on factors of production such as land, labour and capital so they can be put to work and boost the supply side of the economy thus leading long run growth and a likely increase in tax receipts. Some example of this can be found in the budget: decrease in corporation tax to 20% (from 28% when he took office) which is a competitive rate compare to other developed economies. Another example was companies being able to benefit from the national insurance holiday worth up to £2000 which will also benefit small businesses who will pay no “job tax” if you will.
I’d therefore conclude that overall it is a good budget. It could be better but at least there are some good supply side initiatives. Nevertheless, borrowing is likely to increase which might offset the desirable effects of the beneficial policies.
I would agree with what Gabz's notion however, I would differ at the same time. The policies you have provided Gabz are all long term and there is a 'maybe' involved within them. I believe that the UK should employ policies that benefit them not only in the long run but within the short run as well, and it is these policies which are also more likely to have a more significant effect in the long run.
ReplyDeleteYes, investment can be increased by a decrease in crowding out and record low borrowing costs, however, who would initiate such spending in a time as such, where the level of confidence is low not only amongst consumers, but businesses likewise. Therefore, I believe that spending must not be cut however, increased in the short run as to initiate a multiplier effect that could lead to an increase in employment generating income for the consumers which would lead to an increase in investment by these consumers. I understand that this investment will be marginal but could have a large effect on the economy amongst fears of a triple dip recession due to manufacturing as there could be an increase in demand specifically for goods produced within the UK - such as cars. However, I believe that spending of such a large scale carried out on just infrastructure is not justifiable in a country such as the UK where the level of infrastructure is already of a competitive standard globally. Improvement in infrastructure will also not bring any foreign direct investment as firms would prefer to locate to lower cost areas such as India, China or Bangladesh. It is for this reason that I believe spending should be increased but only on areas that would benefit consumers and businesses directly, such as subsidies, or an increase in public sector incomes.
Hazim, I agree with your point about low confidence. However, you argument about increasing spending is contradictory with it because the extra income created will most likely be SAVED not spent and thus there is likely to be a reduced impact on growth than you protray. Secondly, HOW ARE YOU GONNA PAY FOR IT?? When the UK is already running a chronic fiscal deficit?
Deleteand correct me if I'm wrong but are you also advocating subsidies???
I agree with Hazim's argument. I believe that the UK needs to increase government spending in order to stimulate growth in the short run, despite the fact that they are already in a chronic fiscal defecit.
DeleteAlthough this will result in a greater repayment, the stimulated growth in the shorter term and for years after can potentially make up for the initially loss. I would also advocate subsidies, as well as reduce corporation taxes in order to encourage FDI, investment in capital goods and employment. However, as it is often evaluated that businesses may not spend on capital or employment, to ensure the extra profits are spent on these, I would, as a government, provide businesses with a contract, stating that taxes will be lowered to 20% on the individual business as long as a certain percentage of the profits are set aside for employment.
This, in my opinion, would lead to successful growth as confidence in the economy will increase in the short term, which will directly impact the longer term, and taxes can be increased later if necessary.
However, I think the proposed budget will work, but we'll see.
I'm not hugely supportive of your Ideas, Becky and Hazim. I feel that you're not taking into account the real effects of continuing the policy of stimulus. To bring politics into it, which i should be, governments tend not to advocate spending cuts, due to the loss of votes and this will continue to be true after your stimulus packages. Along with the downgrading of the credit rating, I fear that pushing for stimulus will ultimately create a greater debt without having delivered the growth needed to repay it.
DeleteBecky, you would need to be careful with your policy of subsidisation, given membership of the EU and the WTO. It's possible that it would be acceptable and for this i would emphasize subsidies going to small businesses if any. They tend not to compete abroad, meaning fewer consequences in terms of geopolitical relations, and they also generate domestic employment brilliantly, often supplying niche markets. I do agree with your tax cuts for businesses to an extent. It's the one policy i can see actually having greater gains and not that far in the future. Also, it think it compliments the change in many developing nations, whereby costs are beginning to increase. Cutting taxes at home will encourage them to move back earlier than they naturally would have.
Hazim, I agree that infrastructure is either too long term or will have marginal effects given the quality of the UK's already. But i have to agree with Gabz, you just don't address the issue of continuos borrowing.
To conclude, I will paraphrase something that Sami Al Suwaidi, the 'God of Economics', once told me. In the end it doesn't matter because Brzezinski, Rothschild and Rockefeller will do what they want regardless.
Overall, I think it's a relatively good budget but like Hazim has said, there aren't many short term policies that are being implemented, but it's difficult to implement such policies without spending more in the short run. If we want short term effects, the UK government is going to have to allow the budget deficit to become larger in order to have long term effects and increase their revenue in the long run.
ReplyDeleteAs for the reduction the cancellation of the beer duty escalator and reducing general beer duty by two per cent from 25 March 2013, I'm not sure how this is going to boost the economy especially after all of the concerns of alcohol being too cheap. I'm not sure that it will have a significant affect on demand of beer, after all it's only worth a penny on a pint of beer.
The reduction in beer duty is more of a political move than an economic one.
DeleteNot really sure if this would work. I think the government must decrease minimum wage together with decreasing unemployment benefits. If minimum wage is lowered, businesses may begin to demand more workers. Also, in my opinion i think that workers will also be more willing to work as they won't have much choice. Now this could benefit the economy as government spending could dramatically drop. However, the effect on consumption could be difficult to predict. It may increase as more people are employed, however this may not be the case as benefits are lowered, so AD may actually switch to the left. Now this may be to harsh on the people, but i personally don't care, as the current state of the economy is horrible.
ReplyDeleteAlso, government spending does not necessarily have to drop. The money that was spend on benefits, could now be used on building new infrastructure.
The problem is that the current unemployment in the UK is caused by a lack of demand as opposed to supply. Your argument is that cutting the unemployment benefit will force people to work as opposed to just claiming benefits, and this would work if it was a supply shortage problem. However, since it is a lack of supply, there are simply not enough job availabilities for people to fill. It's true that decreasing the costs of employment through decreasing the minimum wage will encourage firms to employ more people but you need to take into account the effects for the conservative party. I would be surprised if Cameron allowed Osborne to create a policy that would effectively lose them the elections.
DeleteIf the government decreases spending on benefits, they will therefore have more money to spend on businesses. They could now increasing spending on domestic businesses. Grants could be given to enhance competition within a market.
DeleteAmba, cutting back on benefits will not work right away, you are right. However, in the long run it may because of the reason i stated above.
The government does not have to cut back on benefits dramatically. This is because they don't have to. A little amount will already be a massive benefit to the government.
*Increase
DeleteOverall, I believe that the current budget deficit is a major issue, one which will only worsen significantly unless a tighter fiscal policy is implemented. Therefore, agreeing with Gabrieles’ point of view, I would strongly encourage a reduction in both taxation and government spending. Reducing government spending should make a necessary start on improving our current fiscal deficit, despite its duration, and although this is a policy for which benefits are seen in the long run, increasing the level of spending or maintaining its current level would be a mistake. The reason being is the UK government cannot afford to either maintain or increase its current level of spending unless it wishes to borrow more money, this linking to the point about there not being enough short term policies, as mentioned by Hazim.
ReplyDeleteAs for reducing taxation, this should act as compensation for the lower levels of spending, providing both firms and consumers with greater means to spend. Firms will be able to invest more due to their larger profit margins, this along with the growth in consumption (greatest component of aggregate demand) due to lower income tax means that there should in turn be a rise in AD, despite the lower government spending. Unfortunately, this policy depends on the marginal propensity to consume and save, if the MPS it higher than the MPC then this policy may be classed ineffective.
The one thing you have not specified, is which you would decrease to a greater extent. You agree with Gabz to decrease both Taxes and Spending but there would be varying effects depending on the extent of each.
DeleteFascinating.
ReplyDelete