Fairness and Fiscal Strategy

In addition to the budgetary strategy itself, I hope the Government are hard at work on the political strategy for the four-year plan.   Unfortunately, it seems chances are fading of a limited degree of political consensus to support the credibility of the plan.   As I have written before, I think it will be essential that people focus on the overall fairness on the package rather than on individual measures that particularly target them — there will be lots of the latter for all of us.   The ESRI’s SWITCH model is the best tool available for establishing the allocation of burdens for the plan as a whole.   Tim Callan and co-authors show the power of the model at today’s Budget Perspectives conference:  paper here; slides here.

In the UK the new government appear to realise the importance of the overall perception of the fairness of package, and the debate there is more advanced.   Philip Stephens has a nice piece on the politics of fiscal adjustment today’s FT.   (As a read it, it is hard not to think of the damage done by Mr. Sutherland’s fly-in pontificating.)  Using the example of changes to child benefit, Stephens captures well the challenges involved with coming up with a package that is widely viewed as fair:

Fairness, of course, lies in the eye of the beholder. Though it might seem entirely reasonable to most people that those earning more than £44,000 a year or so should lose child benefit, the anomalies thrown up as between two- and single-earner couples appear less so. What will ultimately matter, though, is how the nation comes to see the spending package as a whole.

We may know more after the weekend. The title of Brian Lenihan’s Keynote Address at the DEW 33rd Annual Economic Policy Conference in Kenmare is “Current Issues in Political Economy”.