Is the Magical Media Mystery Tour of the Finance Minister over? When he is finished speaking by himself to the local press outlets which he subsidises directly from the State’s purse, the real conversation can begin.
So far, the Minister has spoken and bragged about everything on public finances except for the core issues, which everyone seems to be conveniently avoiding.
As explained here, the Labour government has created an economic model based on consumption growth, and this consumption growth is subsidised by the state. The energy and fuel subsidies cost at least 1.5% of GDP. The government is right to say that economic pain will be caused if subsidies are cut, but the government is also refusing to contend with the fact that consumption growth is dependent on public spending.
The Finance Minister has to transition to a high-value economy, and his TCN measures are part of that, but economic policy needs to catch up.
Work needs to be implemented immediately if the red lines in the fiscal books are to hold. Complacency would only increase the risk of pain and disaster.
What the Minister is not saying is that the 4% economic growth figure can currently only be achieved through government spending, but the Prime Minister is intentionally avoiding questions about potential transitions away from this dependency.
If economic growth falls to 2%, tax income would go down significantly, disrupting plans to meet deficit targets. The government is refusing to contend with the fact that 4% economic growth based on government subsidies cannot continue forever, and an exit plan should be in place to replace this dependence on government subsidies.
There is no exit plan, however, which means there will be no capital expenditure planned, and the infrastructure will continue accumulating problems over the long term.
The government’s finances can be described as a politically popular feel good medicine, but the problem is that this just keeping the wound from getting infected while the solution lies in deep and interventive surgery.
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