A Budget for the few
Posted on March 19, 2014 by Paul Mac Flynn
Budget 2014 announced some interesting measures for pensioners and savers but overall the economic strategy remains as it was. Government fiscal policy remains committed to reductions in government expenditure extending to the end of the decade despite serious concerns over the sustainability of the current 'recovery'.
On the overall macroeconomic position, the OBR revised up figures for growth in 2014 and 2015, with slight downward revisions for 2016-2018. The OBR in their report claim that the recent positive growth in GDP is using up spare capacity in the economy and so there is no space to ease off on austerity measures for the public finances. This is a highly subjective and premature analysis. As of now the OBR has the lowest estimate of the output gap (the measure of spare capacity) among all major economic commentators. They have plans this to review how they calculate the output gap. If this review leads to an increase in the output gap and consequently how much spare capacity they calculate is in the economy then their views on austerity are completely undermined.
Figures for the public finances confirm that while the deficit is decreasing the target of eliminating it by the end of this parliament is long gone, and 2019 is now the new deadline. The aim of falling Government Debt to GDP levels is yet another missed target.
On tax, the government continued its policy of increases to the tax-free threshold, bringing it up to £10,500. While this policy is supposedly aimed a low earners it is worth pointing out that it ignores those on incomes below £10,000 and benefits the richest 10% of earners the most.
On savings and pensions, the government has introduced some innovative measures, in particular ending the compulsory purchase of annuities and increasing thresholds for ISA's. These measures will be of little comfort to people who at present are struggling to meet day to day expenditures from greatly reduced wages and who can only dream of earning enough to start saving.
The Chancellor acknowledged that despite much talk of sustained recovery, levels of business investment have not increased to acceptable levels. To this he has offered increased tax-free thresholds to £500,000. However another tax cut for corporations won't be enough to reach the 8% and 9% year on year investment growth that the OBR expects over the next half decade.
Furthermore the Chancellor has sought to reduce commercial energy prices by abandoning the last remaining green initiatives and by lowering the floor price for carbon. This may give the illusion of a boost to business in the short term but there will be a long term price to pay for ignoring climate change.
For Northern Ireland, the creation of an enterprise zone in Coleraine is scant consolation for the loss of 300 DVA jobs in the town only last week. Enterprise zones offer tax rebates and incentives for new businesses but often end up diverting planned investment and deliver poor value for money to the exchequer.
Overall, aside from some help for those who can afford to save, this budget alters little for the economy overall. There was no mention of the continuing erosion of wages or the impact that another five years of expenditure cuts will have on public services or economy as a whole.