The deficit figures today are disappointing. There are a slew of one-offs, such as the 45p tax change a year ago (see Guardian story).
I think some of the story has to be here. A quick X-Y of the NGDP growth vs the growth in Income tax revenues of three distinct periods:
The actual slope hasn’t changed much. Tax revenues are geared; they fall unless NGDP is growing at least at 2%, but then the slope has an elasticity of about 2.
The problem has been that NGDP has been weak; between 2 and 4% for much of this recovery. And far too volatile! Who on earth could have been calling for tighter money when it was growing only 2-3% a couple of years ago?
For years before the crash we could grow NGDP at 6% or so. Income tax revenues grew around 7-8%. Why not now in the recovery phase?