Monday 30 January 2012

Fun Online Polls: Scottish independence & eliminating the deficit

There was a late surge in last week's Fun Online Poll, and the final result in the second and final round is as follows:

Which is your preferred option?

Abolish the Scottish Parliament and scrap devolution - 53% (29%)

Full independence for Scotland outside the UK - 47% (41%)


The figures in brackets are the votes for those two options in the first round held the week before. So there was a slight change of heart in the final round, but that is the end of that, the people have spoken.
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The government is bleating on about maybe cutting taxes or reducing government debt but is not actually doing either. If we rule out tax increases to eliminate the annual deficit, then the only option is to reduce spending.

The Public Sector Finances Databank (available here, Excel), tells us total government spending and tax receipts back to the 1970s. Forecast total revenues (mainly taxation but also other bits and pieces) for 2012-13 ar £594 billion (Tab C2) and spending is pencilled in at £715 billion (Tab B1), giving us a deficit and increase in total debt of £121 billion, which strikes me as pretty horrific.

If we assume average price/wage inflation of 3% a year, it is easy to go back and identify the last year in which government spending was no more than £594 billion in real terms, which happens to be 2003-04. Spending in that year was £456 billion, using Excel, 456*(1.03^9)=594, so in real terms it was £594 billion.*

So that's this week's Fun Online Poll. Vote here or use the widget in the sidebar.

* If you are happy to return us to The Dark Ages of the 1997-2001 Labour government, then spending would be about £500 billion a year and there'd be scope for pretty hefty tax cuts as well, we'll deal with that possibility later on.

7 comments:

Deniro said...

How do you know that the Full independance crowd would not like to team up with the DEVO max crowd.

Mark Wadsworth said...

Den, I never said that they wouldn't. But Pollcode doesn't let you do AV.

Richard Allan said...

Approval Voting? Yes it does Mark! This is my psephology wonk talking, what you mean is IRV.

Bayard said...

If you have an tax income of £594bn and gov't expenditure of £594bn, there isn't much scope for either tax cuts or deficit reduction, or have I missed something?

It's amazing that the government can't carry out the simple exercise of looking to see what the £594bn was spent on in 2003-2004 and then looking to see where the extra expenditure has crept in since then and cutting it. After all, AFAICR, all the schoolsnhospitals were working OK back then. OTOH, I suppose they don't want to do that, as they don't want to know the answer.

Mark Wadsworth said...

RA, what I mean is that Pollcode won't let people rank things. You can allow people to vote for one thing only or for any number of things, but not with numerical ranking.

B, may I paraphrase: "If you have an tax income of £594bn and gov't expenditure of £715bn, there isn't much scope for tax cuts."

As to your second para, completely agreed, that was my whole point.

QP said...

In general I'd like to see a more differentiation between the issues of the size of the budget deficit and what the deficit (and overall government expenditure) goes on. Public spending waste is clearly bad but running a deficit not necessarily so, and could be seen to represent private saving, which is handy when the private sector is heavily indebted. In the same way that not all taxes are equally damaging to the economy, not all government (deficit) spending is equally damaging/beneficial. The idea that government finance (assuming monopoly issuance of a fiat currency) is like a household, in that it gets tax income first to then spend, is patently false and should be debunked in my opinion.

Mark Wadsworth said...

QP, agreed, there are good taxes and bad taxes; there is good government spending and bad government spending. But there was plenty of bad government spending even in 2003-04, it wasn't exactly a lean and mean government even then. In real terms, average spending during the 1990s was about £500 billion.

"The idea that government finance (assuming monopoly issuance of a fiat currency) is like a household, in that it gets tax income first to then spend, is patently false and should be debunked in my opinion."

Correct, it's called Modern Monetary Theory, which says that it is equally valid to say that the government just spends what it wants and only collects taxes to prevent monetary inflation. But by and large, aiming for a small surplus and then ending up with a small deficit anyway is the ideal sort of overall policy.