Tuesday, November 11, 2008

Funded or unfunded?

How can he do it with a straight face?  Not only did Gordon Brown say that national debt was 37% - a distortion that would make Horatio Bottomley blush - prior to a Pre-Budget Report that will probably see total British public debt rise to over 50% not including PFI or public sector pension liabilities, but he had the effrontery to describe Conservative plans as “an unfunded tax cut”.

Two points to make on this.  The first is that the Tory plan is, to a certain extent, funded.  If it costs, as it does, £8,000 to pay unemployment benefit then granting a company which employs someone who has been employed for three months a £2,500 tax break can be construed as a net saving to the treasury.  The true drawback to the idea is that it is so limited – there will certainly be no direct fiscal stimulus provided.

The second point is that Gordon Brown can surely have no credibility making assertions about unfunded tax cuts – indeed, unfunded anything.  Britain’s PSBR is sky-rocketing and the Chancellor is making extremely unfussed assumptions about massively increased borrowing.  If they are serious about making tax cuts – real tax cuts rather than delayed tax rises – the money has to come from somewhere.  And from where does Brown envisage that it comes?

He emphasised that any action in Britain to increase borrowing in order to cut taxes and stimulate the economy needed to be matched with similar moves by other countries if the world was to pull out of the downturn.

From borrowing – in other words, unfunded.  In fact, Brown tied himself into a bizarre knot on this point.  Having first criticised the Tories’ for their “unfunded” tax cut, he then stated that it was in fact funded, and that this was a bad thing.

In a reference to the Tories, he says a funded tax cut is not a fiscal stimulus (because the fact that it's funded means that it is not putting extra money into the economy). In other words, Brown is making a virtue of the fact that he's favouring unfunded tax cuts.

So what is it?  Are unfunded tax cuts a good thing, a fiscal stimulus to help the economy?  Or a bad thing, proof of the Tories’ lack of seriousness?  Or, in truth does Brown not have the faintest idea?  In any event, it should lay Brown open to attack on his credibility.

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