In today’s column. Above all, the theme: Growth is what is needed to fix the finances.
Then he adds his voice to those arguing against the myth of the spending splurge:
the explanation for the sudden explosions in the share of public spending in GDP and the fiscal deficit is not that spending is out of control. It is, instead, that nominal GDP and tax revenue have fallen far below what was expected just two years ago. According to the 2010 Budget, public spending will be just 2.2 per cent higher this financial year than was expected two years earlier, despite the recession. But nominal GDP will be 9.3 per cent lower and tax revenues 18.1 per cent lower.
How did this fiscal debacle occur? The answer lies far more in spending, forecast to jump by an astounding 8.4 per cent of GDP between 2007 and 2010
His mention of PX is in this piece. My irritation at people taking such a simple ratio take on spending is one of about 100 reasons that I wrote A Balancing Act. I have always known that Martin Wolf understood this perfectly, and was mystified at him taking the PX line – and today’s column is proof that I was right. So I am rather chuffed with this.
Wolf has other good advice today about how to boost investment, including from a much-praised PX paper by ex-FT writer John Willman. It is a good paper. His column ends with this commentary on the NI controversy:
Finally, we have the question of how to tighten the fiscal position. I would have no problem with Conservative opposition to higher employers’ national insurance contributions, if they had not suggested that greater efficiency alone might replace it. With a need to tighten fiscal policy by at least £100bn (7 per cent of GDP), the UK must implement all the efficiency savings it can imagine, plus real-terms cuts to public sector pay bills and services, plus tax increases. The parties are determined not to discuss these realities. If politicians treat voters like children, the voters will throw tantrums when cuts come.
This is not just criticism of the Conservative position; it must count as criticism of any party who has found something nice to do and a way to fund it. In a crisis, the bond market might just take the latter, and deny the leeway to carry out the former. The same might apply to the Lib Dem raising of tax thresholds. No matter that they are costed, the real world result might be: get rid of pensions reliefs soon, introduce a mansion tax now, and so on – and we will phase in your tax threshold increase as we think it can be afforded.
UPDATE: In a rush, I forgot to mention other nails he hammered:
The second qualification is that the country is not living beyond its means, to any significant degree; the government is. Not only is the current account deficit modest, but the UK’s net liabilities were only 13 per cent of GDP at the end of 2009. On a consolidated basis, the chief creditor of the UK public sector is the UK private sector, not foreigners
I pointed this out a few weeks back, criticising none other than Wolf’s FT colleage Chris Giles for saying Britain is borrowing too much. As argued on the Long View, Britain is in debt to itself. This is important, you know …