Benchmarking the Osborne & Darling Plans
Last year the IMF’s Chief Economist Oliver Blanchard set out ’10 commandments’ for fiscal adjustment in advanced economies.
Whilst I don’t necessarily agree with them all, they represent a good benchmark of what a sensible technocratic, centrist fiscal adjustment would look like.
Given that I thought I’d score the Osborne and Darling plans against them.
The results (and some notes of my scoring) are below. I reckon Osborne comes out around 40% and Darling 75%. (In a couple of areas there isn’t enough infor to score Darling properly).
How could Osborne increase his score? Quite easily really – reduce the front loading (i.e. slow cuts down), introduce some proper reforms conducive to growth and make the plans more progressive.
|I||You shall have a credible medium-term fiscal plan with a visible anchor (in terms of either an average pace of adjustment, or of a fiscal target to be achieved within four–five years).||YES||YES|
|II||You shall not front-load your fiscal adjustment, unless financing needs require it.
|III||You shall target a long-term decline in the public debt-to-GDP ratio, not just its stabilization at post-crisis levels.||YES||YES|
|IV||You shall focus on fiscal consolidation tools that are conducive to strong potential growth.||NO||NO|
|V||You shall pass early pension and health care reforms as current trends are unsustainable.||YES||No Info|
|VI||You shall be fair. To be sustainable over time, the fiscal adjustment should be equitable.||NO||YES|
|VII||You shall implement wide reforms to boost potential growth.||NO||No Info|
|VIII||You shall strengthen your fiscal institutions.||YES||YES|
|IX||You shall properly coordinate monetary and fiscal policy.||NO||NO|
|X||You shall coordinate your policies with other countries.||NO||YES|
Both Darling’s ‘half the deficit in four years’ and Osborne’s ‘eliminate it’ meet this criteria.
Osborne has front loaded despite no pressing need from market.
Both aimed for this (Osborne faster)
Darling planned did involve big cuts to capital budget which are unhelpful to growth, Osborne plan hits growth even harder.
Osborne has (both by raising retirement age and by changing indexation from RPI to CPI), no infor from Darling as no spending review.
Osborne’s plans are more regressive than Darling’s (according to the IFS). Osborne wants to get rig of 50p rate for example.
Osborne would claim he has (Corp tax cut, etc), but the OBR say the effects are ‘minimal’. No information here from Darling plan.
Darling has the Fiscal Responsibility Act, Osborne has gone further with the OBR.
Hard for either in an era of BOE Independence.
Darling was Chancellor at the height of G20 co-operation, this has since collapsed.