The big news out of George Osborne’s Autumn Statement last week was the abandonment of his fiscal rules. But the real story for economists was in the OBR’s forecasts. There were two rules:
- The cyclically adjusted budget deficit must be eliminated within five years (a rolling window); and,
- Debt must be falling as a percentage of nominal GDP by 2015-16.
What’s notable about both of these rules is that they are about a future balance, so whether they have been met is presently a matter of judgement for the official forecaster. That forecaster is the Office of Budget Responsibility, an independent body that is incredibly transparent about its models, methods, and judgment. In this Autumn Statement its forecasts predicted that the Chancellor will breach his debt target. He is forecast to meet the deficit target, but only by a small margin.
Before getting worked up about Osborne failing to meet his target let’s remember that meeting fiscal targets is not inherently noble. It is a means to and end, and that end is long-term fiscal sustainability. It is ensuring that the country’s debt is manageable in the long run. So the real question is whether Osborne’s targets have much relation to that objective. Read more