The 12th Fiscal Assessment Report from the Fiscal Advisory Council is now available. The report has a summary assessment and four in-depth chapters but here’s a summary of the summary to give a flavour of the analysis:
- The economy is performing strongly and does not require fiscal stimulus.
- It may be necessary for fiscal policy to “lean against the wind” (i.e be counter-cyclical) to offset overheating pressures and/or prepare for possible downside risks that may materialise.
- No overheating pressures evident at present but likely if current high growth continues.
- In the near term, growth may exceed government projections due to momentum from 2016 and possible increase in housing output.
- Medium-term outlook is uncertain due to external risks such as Brexit, and a “hard” Brexit is used as the central scenario in the latest forecasts.
- Debt levels remain high and the role of revised debt targets is unclear.
- Fiscal rules breached in 2016 and likely to be breached again in 2017.
- Unexpected revenue gains have been used to fund within-year increases in expenditure.
- In 2016, government revenue (excluding one-offs) grew by 2.7 per cent and primary expenditure by 2.4 per cent; the underlying primary balance was essentially unchanged in 2016 with a similar outcome expected for 2017.
- Fiscal stance is not appropriate for a rapidly growing economy that is close to its potential, that continues to run a deficit with a high debt levels and that has clearly identifiable risks on the horizon.
- Fully adhering to the fiscal framework, including to the Expenditure Benchmark after the MTO has been achieved, would go some way towards avoiding fiscal policy that aggravates the boom-bust cycle.
- The Council welcomes the commitment to develop an alternative to the Commonly-Agreed Methodology for supply-side forecasts.
There is much more detail on all of this in the report. The report does not contain much about Budget 2018 because the government have not updated their “fiscal space” estimates. These will be provided in the Summer Economic Statement to be published in a few weeks and will be assessed in the Council’s Pre-Budget Statement.