AltAusterity Digest #68 October 4 - 10, 2018

For The New Statesman, George Eaton discusses how austerity as an ideological project failed on its own terms. The pro-austerity agenda relied on three premises: that high government borrowing was unsustainable; that public spending cuts would stimulate private spending growth (“expansionary fiscal consolidation”); and that the burdens of excessive debt would be transferred to future generations. Eaton discusses these premises and their failures. The emphasis on spending cuts over tax rises, in conjunction with other policy options for countries with their own currency, an independent central bank, and low borrowing costs speaks to the first failure. The record of austerity policies on economic growth points to austerity’s second failure. Even the IMF has concluded that deep cuts have depressed growth and in turn have added to national debt. Finally, the pro-austerity ideology was right in one respect, but wrong in identifying the culprit. The burdens of excessive debt and the added burdens of hollowed out public services have been transferred to future generations, but it is austerity, and not “excessive spending,” that is to blame.

According to an assessment by the International Monetary Fund (IMF), Britain’s public finances are among the weakest in the world. Using calculations that combined measures of wealth with stress tests that are used in the banking sector, the IMF found that almost £1 trillion in wealth has been removed from the UK’s public sector – equivalent to about 50% of GDP. The bailout to British banks, as well as rising public sector pension liabilities were also significant factors. Due to massive privatization drives in Britain dating back to the 1980s, the public assets held have decreased significantly, as have potential sources of revenue. The IMF has said they will be working with the UK to identify ways to generate more revenue from government assets. 

The coalition government in Italy may be on a collision course with Brussels. The “people’s budget” prepared by the anti-establishment Five Star Movement and the anti-migrant League is looking as though it will break the rules surrounding limits on government deficit and debt. The government’s fiscal outline projects a deficit of 2.4% of GDP, tripling the size of the deficit run by the previous administration. The Five Star Movement has promised a basic income program for the poor totaling €780 (USD$895) a month, while the League has promised to cut taxes and lower the retirement age. While Spain and France have also regularly exceeded EU fiscal limits, they have yet to be subjected to the up to 0.2% of GDP fine that Brussels can levy on countries that persistently exceed the limits.

According to new research from Moody’s, the Trump tax cuts have already lead to growing income inequality within the United States. While the Tax Cuts and Jobs Act did offer a small tax cut for middle-income earners, the bulk of the tax cuts benefits have been accrued by the top 10% of income earners. The report has warned that increasing income inequality could result in an even more tumultuous political climate, rising social tensions, and a less predictable policy environment. Furthermore, those high-income individuals who benefitted from the income tax cuts disproportionately benefit from the cuts to the corporate tax rate. Therefore, the tax cuts have been most beneficial for high income earners with already high levels of wealth, most notably in stock.

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