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    Perhaps someone with a firmer grasp on fiscal policy can help me with something.

    The UK currently has a budget deficit of about 4% of GDP. The economy is expected to grow at a rate of about 2.3% per year. Over a 5 year parliament this amounts to a total expansion in the size of the economy of 12%. The government's tax take is about 40% of GDP, so tax take should rise by about 4.8% of GDP. That puts the state in surplus without any cuts.

    Yet people seem to be expecting more cuts. Why?
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    You're assuming that spending will remain static, in reality spending will also go up, although not as fast. You also need to consider what's actually being taxed, there is more to it than just the growth. For example, we could have a stagnant economy but have wage growth and increasing profits for busnesses, both of these would lead to higher tax revenues, all else being equal, despite no growth, as it is these quantities, among others that are taxed. Similarly, despite zero-growth there will still be increases in spending because procurement costs might go up (and probably would unless you also have either deflation or 0% inflation), you might also be giving wage increases to civil servants, which would increase your costs, etc. Then there are also spending commitments that should be kept, for example that £8bn to the NHS. Now, it depends whether that is a real terms 8bn or just 8bn, if it's just 8bn then that should constitute a real terms decrease in spending, both real terms in the conventional inflationary sense, and as a percentage of GDP; and irrespective of which it is, that £8bn is about 0.4% of GDP.

    Then you also get yourself tax cuts coming in, raising the personal allowance, for example, will, along with the other income tax changes, reduce by my reckoning income tax revenues by about 10%, or about 1% GDP. You either need cuts in spending or tax rises elsewhere to offset that.

    You've also assumed that the growth will be consistent rather than looking at the forecasts for the whole of the term (or at least as much of the term has been forecast for)
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    (Original post by Jammy Duel)
    You're assuming that spending will remain static, in reality spending will also go up, although not as fast.
    No I'm not. If spending goes up then by definition we are not seeing cuts. Cuts are when spending goes down.

    Then you also get yourself tax cuts coming in, raising the personal allowance, for example, will, along with the other income tax changes, reduce by my reckoning income tax revenues by about 10%, or about 1% GDP. You either need cuts in spending or tax rises elsewhere to offset that.
    It is true that there can be cuts if the total tax burden is to be decreased. However this would contradict the rationale for cuts which is to reduce the deficit, not to permit tax cuts.

    You've also assumed that the growth will be consistent rather than looking at the forecasts for the whole of the term (or at least as much of the term has been forecast for)
    No, if you read the link I provided the PWC projection goes out to 2021.
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    You just need to look at the Tories cuts during the coalition. They said they would protect the vulnerable but in the process abolished the Independent Living Fund, introduced the Bedroom Tax that hit the disabled the most and rolled out Labours failed ESA test to DLA claimants in the form of PIP.

    Now that the Tories have a majority you can expect all the rumors posted on TSR to come into reality.

    So what is next?

    1. Pre-paid Cards.
    2. £2 Min-wage for disabled people.
    3. Disability benefits taxed.
    4. Carers allowance abolished.
    5. Industrial Injuries abolished.
    6. Maternity pay abolished.
    7. Sick pay abolished.
    8. Child tax credits reduced.
    9. ESA WRAG group abolished and put onto JSA rates.

    ETC ETC.

    And if Tories do a 3rd or 4th term you can expect them cutting welfare every single year. They won't be satisfied until the blind and limbless are shinning shoes outside Tesco for 50 pence a go.

    This is Australia and this is what poor Australians have to do to survive.

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    (Original post by Observatory)
    No I'm not. If spending goes up then by definition we are not seeing cuts. Cuts are when spending goes down.
    Except we're talking real terms so you can have cuts and have spending go up

    It is true that there can be cuts if the total tax burden is to be decreased. However this would contradict the rationale for cuts which is to reduce the deficit, not to permit tax cuts.
    Except said tax cuts are being done for a reason, if it were a simple case of get the deficit down then would such simplistic logic not dictate that you should just put taxes up, there ya go, more money?

    No, if you read the link I provided the PWC projection goes out to 2021.
    Well, their projections are flat rate, and they're also the first I've ever seen that have it being so flat, most I've seen/heard have a greater increase next year and either similar or higher again the year after rather than 2.3% this year, next year, and on average for the 5 years after that.
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    dont cut yourself! seek help!
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    (Original post by Jammy Duel)
    Except we're talking real terms so you can have cuts and have spending go up
    The GDP growth figures are also in real terms, so you get inflation adjustment for free.

    Except said tax cuts are being done for a reason, if it were a simple case of get the deficit down then would such simplistic logic not dictate that you should just put taxes up, there ya go, more money?
    Yes, raising taxes would have been a perfectly viable way to eliminate the deficit, but with similar drawbacks to spending cuts, like putting deflationary pressures on the broader economy. Both parties clearly calculated that it was less politically costly to eliminate the deficit by spending cuts than by tax increases, and only disagreed on the timetable. That is quite different, however, from advocating more spending cuts than necessary in order to reduce taxes, or advocating increasing taxes more than is necessary to eliminate the deficit.

    Well, their projections are flat rate, and they're also the first I've ever seen that have it being so flat, most I've seen/heard have a greater increase next year and either similar or higher again the year after rather than 2.3% this year, next year, and on average for the 5 years after that.
    It's an average; they are not saying that they expect growth to be exactly 2.3% in every year, they are saying they expect the period to average 2.3% annual growth. There's surely a great deal of uncertainty in these figures but it would be much more silly to assume that growth is going to be 0% (why not -10%?). Osborne's projections in 2010 also took account of growth - in fact they assumed more growth than actually took place.
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    (Original post by Observatory)
    The GDP growth figures are also in real terms, so you get inflation adjustment for free.


    Yes, raising taxes would have been a perfectly viable way to eliminate the deficit, but with similar drawbacks to spending cuts, like putting deflationary pressures on the broader economy. Both parties clearly calculated that it was less politically costly to eliminate the deficit by spending cuts than by tax increases, and only disagreed on the timetable. That is quite different, however, from advocating more spending cuts than necessary in order to reduce taxes, or advocating increasing taxes more than is necessary to eliminate the deficit.
    How do you define what is necessary? For example, most governments for the last few decades have seen a surplus as absolutely unnecessary, ergo ANY spending cut or tax hikes were more then necessary despite the fact they could have near eliminated the national debt. Similarly, the Conservatives seem to think that 3 years is a reasonable time span, while, based on analysis of their manifesto, Labour seemed content with perhaps a decade or more.
    Also, last I checked, you tend not to get asset flight with spending cuts whereas you would be if you're going to be bumping taxes up 25%, particularly given that most of that will be targetted at the wealthier members of society.


    It's an average; they are not saying that they expect growth to be exactly 2.3% in every year, they are saying they expect the period to average 2.3% annual growth. There's surely a great deal of uncertainty in these figures but it would be much more silly to assume that growth is going to be 0% (why not -10%?). Osborne's projections in 2010 also took account of growth - in fact they assumed more growth than actually took place.
    My point is that this is the first set of projections that show this behaviour and are different from the BoE projections which, IIRC, have it as 2.3% this year and 2.6% next year, and if the trend from previous projections is maintained go up a little further in 2017, not this flat 2.3% growth this year, 2.3% next year, average of 2.3% for the years after that.

    Okay, having gone and had a look at the May report summary, there is expectation at the moment for it to be fairly steady growth for the next few years in the 2-3% band, it is also worth noting that for the last 5 years there has a tendency for the growth to actually be at the bottom end of their band which would suggest, should this trend continue, that the PwC forecasts will be on the high side.
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    (Original post by illegaltobepoor)
    You just need to look at the Tories cuts during the coalition. They said they would protect the vulnerable but in the process abolished the Independent Living Fund, introduced the Bedroom Tax that hit the disabled the most and rolled out Labours failed ESA test to DLA claimants in the form of PIP.

    Now that the Tories have a majority you can expect all the rumors posted on TSR to come into reality.

    So what is next?

    1. Pre-paid Cards.
    2. £2 Min-wage for disabled people.
    3. Disability benefits taxed.
    4. Carers allowance abolished.
    5. Industrial Injuries abolished.
    6. Maternity pay abolished.
    7. Sick pay abolished.
    8. Child tax credits reduced.
    9. ESA WRAG group abolished and put onto JSA rates.

    ETC ETC.

    And if Tories do a 3rd or 4th term you can expect them cutting welfare every single year. They won't be satisfied until the blind and limbless are shinning shoes outside Tesco for 50 pence a go.

    This is Australia and this is what poor Australians have to do to survive.

    The obvious difference is that at the beginning of their first term the deficit was about 11% of GDP whereas today it is 4%. Moreover the economy is predicted strong growth whereas at the beginning of their first term the economy stagnated. I do not understand why they would cut just as fast as last term, let alone faster.

    Even if you think the Tories are purely self-interested, I don't understand why they'd give up a perfect opportunity to sit on power for at least one term and maybe longer without upsetting anybody, in which time they can implement their desired social legislation and quietly divert half of the proceeds of economic growth to tax cuts, as Cameron said way back in 2005.
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    (Original post by Jammy Duel)
    How do you define what is necessary? For example, most governments for the last few decades have seen a surplus as absolutely unnecessary, ergo ANY spending cut or tax hikes were more then necessary despite the fact they could have near eliminated the national debt. Similarly, the Conservatives seem to think that 3 years is a reasonable time span, while, based on analysis of their manifesto, Labour seemed content with perhaps a decade or more.
    Also, last I checked, you tend not to get asset flight with spending cuts whereas you would be if you're going to be bumping taxes up 25%, particularly given that most of that will be targetted at the wealthier members of society.
    Well, no, they haven't. Running consistent surpluses has not happened in this country under any government of recent decades. Indeed running a surplus isn't necessary even just to reduce the debt burden; all you need is a deficit that is less than growth + inflation. Balancing the books, or running a slight surplus (I project a ~1% of GDP surplus for "free" i.e. without any cuts at all) would reduce the debt burden at >4%/year as a proportion of GDP.

    My point is that this is the first set of projections that show this behaviour and are different from the BoE projections which, IIRC, have it as 2.3% this year and 2.6% next year, and if the trend from previous projections is maintained go up a little further in 2017, not this flat 2.3% growth this year, 2.3% next year, average of 2.3% for the years after that.

    Okay, having gone and had a look at the May report summary, there is expectation at the moment for it to be fairly steady growth for the next few years in the 2-3% band, it is also worth noting that for the last 5 years there has a tendency for the growth to actually be at the bottom end of their band which would suggest, should this trend continue, that the PwC forecasts will be on the high side.
    I don't expect the predictions of PWC or the BoE to be accurate to a precision of 0.1; nonetheless, those predictions are consistent with one another to +-20% and they look like a very reasonable estimate of the average growth that can be expected throughout the parliament, in line with growth observed before the recession and by other countries in a similar stage of recovery.
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    (Original post by Observatory)
    The obvious difference is that at the beginning of their first term the deficit was about 11% of GDP whereas today it is 4%. Moreover the economy is predicted strong growth whereas at the beginning of their first term the economy stagnated. I do not understand why they would cut just as fast as last term, let alone faster.

    Even if you think the Tories are purely self-interested, I don't understand why they'd give up a perfect opportunity to sit on power for at least one term and maybe longer without upsetting anybody, in which time they can implement their desired social legislation and quietly divert half of the proceeds of economic growth to tax cuts, as Cameron said way back in 2005.
    I'll make this real simple to understand. Lets take a number 1000. This represents the finite resources of the planet. Then lets have global population growth growing at 100 every year.

    Every year people are going to become worse off in terms of living standards.

    This applies to politics in a strong way.

    The Tories have been pro-upper class for a long time but they have realized that for every 1 rich person there are thousands of poor people. This is why they need to attract a lot of the working class vote. The blue collar workers as Cameron describes them.

    The Conservative ideology has not changed. They just seek to attract more voters to keep themselves in power.

    What they are doing now is applying the Republican message to the UK and bolstering the postion of well off blue collar workers against their much poorer counterparts in order to keep their control over the UK's Government.

    What a lot of people haven't got onto yet is the fact that by taking the poorest out of tax Cameron is able to claim they are not tax payers anymore and in spite of this he doesn't have to represent them because they are not hard working tax payers.

    Cameron will tell you exactly. Here is a clip of him.

    He aims to pitch the Proliteriat against the Precariat.

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    (Original post by illegaltobepoor)
    I'll make this real simple to understand. Lets take a number 1000. This represents the finite resources of the planet. Then lets have global population growth growing at 100 every year.
    I've a feeling this discussion won't go anywhere, but the obvious objection is that the amount of new stuff being produced not only isn't zero but the rate at which more stuff is being produced is continually increasing.
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    (Original post by Observatory)
    The obvious difference is that at the beginning of their first term the deficit was about 11% of GDP whereas today it is 4%. Moreover the economy is predicted strong growth whereas at the beginning of their first term the economy stagnated. I do not understand why they would cut just as fast as last term, let alone faster.

    Even if you think the Tories are purely self-interested, I don't understand why they'd give up a perfect opportunity to sit on power for at least one term and maybe longer without upsetting anybody, in which time they can implement their desired social legislation and quietly divert half of the proceeds of economic growth to tax cuts, as Cameron said way back in 2005.
    It's ideological in my opinion. In the same way that Ed believed there was a shift to the left as a result of the Great Recession, i think that Cameron/Osbourne genuinely believe there's been a shift to fiscal conservatism and with a majority i'd expect them to move towards building surpluses more akin to the Autumn Statement than the budget as a result.

    Probably because they may never have another opportunity to cull the state to this degree again. The British people are not fiscally conservative by nature.
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    (Original post by Observatory)
    Well, no, they haven't. Running consistent surpluses has not happened in this country under any government of recent decades. Indeed running a surplus isn't necessary even just to reduce the debt burden; all you need is a deficit that is less than growth + inflation. Balancing the books, or running a slight surplus (I project a ~1% of GDP surplus for "free" i.e. without any cuts at all) would reduce the debt burden at >4%/year as a proportion of GDP.


    I don't expect the predictions of PWC or the BoE to be accurate to a precision of 0.1; nonetheless, those predictions are consistent with one another to +-20% and they look like a very reasonable estimate of the average growth that can be expected throughout the parliament, in line with growth observed before the recession and by other countries in a similar stage of recovery.
    Are you telling me you don't see the benefit of cutting the nominal debt, because you seem to be giving the impression that simply cutting the deficit as a percentage of GDP is sufficient, even though it leads to an increasing nominal debt and thus increasing debt repayments. Yes, reduction proportional to GDP is good, but still not as good as nominal decreases
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    There'll be more cuts than an emo teen on Tumblr
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    (Original post by Jammy Duel)
    Are you telling me you don't see the benefit of cutting the nominal debt, because you seem to be giving the impression that simply cutting the deficit as a percentage of GDP is sufficient, even though it leads to an increasing nominal debt and thus increasing debt repayments. Yes, reduction proportional to GDP is good, but still not as good as nominal decreases
    I am not advocating that, I am just saying it is all that is strictly necessary. If we reduced the deficit to, say, 1% of GDP then for sure the nominal debt would continue to rise, but both its value in real terms and its proportion of our ability to repay it would decrease exponentially.

    My personal view is that one should never borrow money to fund consumption which is ultimately, contra Labour, what almost all government spending is. On the other hand, I'm in no rush to run large surpluses to pay down the debt further as it is very cheap to service. As a taxpayer I would rather invest more privately than pay off the national debt.

    Having said all that, my question is about what the government will do, not what I would do. The government has said it will eliminate the deficit. Fine. But to do that they don't need to make any more cuts, unless I've made a big error somewhere.
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    (Original post by Observatory)
    I am not advocating that, I am just saying it is all that is strictly necessary. If we reduced the deficit to, say, 1% of GDP then for sure the nominal debt would continue to rise, but both its value in real terms and its proportion of our ability to repay it would decrease exponentially.

    My personal view is that one should never borrow money to fund consumption which is ultimately, contra Labour, what almost all government spending is. On the other hand, I'm in no rush to run large surpluses to pay down the debt further as it is very cheap to service. As a taxpayer I would rather invest more privately than pay off the national debt.

    Having said all that, my question is about what the government will do, not what I would do. The government has said it will eliminate the deficit. Fine. But to do that they don't need to make any more cuts, unless I've made a big error somewhere.
    Good

    As I said from the start, growth should be able to eliminate the deficit, but it's all a question of how long you want it to take and some cuts are probably the better move politically. Some of the cuts in the last parliament kinda needed to be done, the ones this time probably not so much, that aside though it should be easier to be elected by cutting and running a surplus a few years at the end than to be just running a surplus as you finish the term. The main reason for this is going to be that if the books are balanced mid term it allows you to use that 2%+ growth to start giving back, in terms of government revenues it translates to getting on for 1% increase, as you said. What can you do with this 1% growth? Increase the surplus, suggestion is that it won't be used for this, opting at least for this term to go for a small surplus, although I wouldn't be surprised if the Tories win in 2020 the surplus will be larger for a while. What is far more likely is exactly what was in the last parliament and in pretty much every parliament before that and that is to give stuff back, whether that be increased spending or decreased taxes. You use your cuts in the first few years, which people will have mostly forgotten about anyway, to allow you to appease the electorate taxpayer, you reduce their taxes, making them happy, and make them feel like their taxes are going where they would approve by boosting spending in certain areas. You could even reverse some of your cuts if there is the money there and people are still making a big deal, although the whole going back on what you did comes with its own problems.

    It's not that they necessarily need to cut, although with various commitments it pretty much is necessary, not least the pledge to run a surplus by 18/19, it's that they want to to be in a MUCH better position going into the next election.
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    (Original post by illegaltobepoor)
    So what is next?
    1. Pre-paid Cards.
    There are two imperatives governing benefits reform; getting folk into work and cutting the bill. This would achieve neither.

    2. £2 Min-wage for disabled people.
    Not likely. Direct subsidy to employers would be more cost effective than this form of indirect subsidy.


    3. Disability benefits taxed.
    Very possible, though I would suspect an overhaul of PIP is more likely.

    4. Carers allowance abolished.
    On the contrary; family care is the key to getting control of the NHS bed blocking problem.

    5. Industrial Injuries abolished.
    Racing certainty I would think.

    6. Maternity pay abolished.
    Improbable. It would throw costs onto the state.

    7. Sick pay abolished.
    Likewise

    8. Child tax credits reduced.
    Possibly

    9. ESA WRAG group abolished and put onto JSA rates.
    The rates may be assimilated but if the benefit disappeared then the lunatics would have taken over the asylum.
 
 
 

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