Tag Archives: budget

Seven things to watch for in Cameron’s next government


It’s morning in the United Kingdom, and the BBC is projecting that the Conservative Party will win 325 seats — exactly half of the House of Commons, and an increase of 20 seats from the 305 seats that the Tories held in the prior parliament.United Kingdom Flag Icon

What’s clear is that prime minister David Cameron will keep his job, and all the talk of a hung parliament and weeks of coalition-building seems to have been wrong.

But what will Cameron face in the next five years?

Here are the seven things to watch, as the second Cameron government unfolds: Continue reading Seven things to watch for in Cameron’s next government

The narrative of federal spending in Canada ignores provincial debt


I don’t mean to single out any particular post at any particular think tank, but a post from Chris Edwards at the Cato Institute today gets to the heart of why I am so distrustful of think tanks that lean so clearly either to the right or to the left.Canada Flag IconUSflag

The Cato post comes after Conservative finance minister Jim Flaherty (pictured above) unveiled a budget on Tuesday that outlines further spending cuts designed to lower Canadian public debt more deeply, largely keeping to the same fiscal path that prime minister Stephen Harper’s government has set for years.  The post, however, argues that the gap between federal spending in Canada as a percentage of GDP, which is lower, and federal spending in the United States, which is higher, is growing:

In Canada, federal spending fell to just 15.1 percent of GDP in 2013 and the government projects that the ratio will decline steadily to 14.0 percent by 2019 (p. 268). Federal debt as a share of GDP fell to just 33 percent this year.

Then follows some fairly massive generalizations about the state of Canadian and US federal spending over the past two decades and contemporary politics in both countries:

On federal fiscal policy, Canada has had pragmatic centrist leadership for the last two decades, with voters keeping the loony left out of power. In the United States, we’ve had power divided between centrist Republicans and loony left Democrats in recent years….

Pundits often claim that the Republicans are controlled by radical Tea Party elements. I wish that were true, but in terms of policy results there is no evidence of it. Republican and Democratic leaders are apparently satisfied with federal spending, deficits, and debt far larger than acceptable to the centrists in Canada.

And there’s a chart that proves it! See!? Canada good, US bad.


But there’s no indication that these numbers include spending at the provincial level, which is much more robust in Canada than corresponding spending at the US state and municipal level.  It’s trend that has accelerated in the past two decades, as well, following Canada’s narrow brush with Québec’s independence referendum in 1995.  That makes the chart essentially useless — it’s an apples-to-maple-leafs comparison.   Continue reading The narrative of federal spending in Canada ignores provincial debt

What game theory tells us about the sequester showdown


Here in the United States, we’ve reached the final day before $85 billion in spending cuts take effect from sequestration (Ezra Klein really does provide ‘everything you need to know‘ in background, so I won’t waste your time with my own explanation). USflag

For non-U.S. readers (or lazy Americans), here’s the issue in a nutshell: Back in 2011, the United States was nearing its debt limit ceiling — a totally idiosyncratic limit on the U.S. treasury incurring additional debt, regardless of whether the U.S. Congress has enacted spending necessitating the issuance of further debt.  It’s so idiosyncratic that only Denmark has a similar mechanism.

Because the Republican Party won control of the U.S. House of Representatives in the 2010 midterm elections, negotiations between U.S. president Barack Obama and the U.S. Congress in summer 2011 were more fraught than usual over the debt ceiling.  Partly, that’s because of the influence of the ‘tea party’ movement that boosted the ranks of House Republicans with anti-deficit legislators and that threatened the remaining House Republicans who cooperated too readily with the Democratic administration with primary challenges in future congressional elections (i.e., if you’re not conservative enough, we’ll put up someone who is: see, e.g., U.S. senator Bob Bennett, U.S. senator Dick Lugar).

So the solution was a last-minute agreement, which provided for a ‘supercommittee’ to recommend legislation to reduce the U.S. budget deficit by $1.2 trillion in the next decade.  If that failed to result in a compromise (and of course it failed, and it failed way back in November 2011), lawmakers would be subject to around $85 billion in automatic across-the-board cuts (the ‘sequestration’), half of which would affect U.S. defense spending and half of which would affect U.S. domestic spending (though the cuts to domestic spending are, well, pretty much dumb from any point of view, economic or otherwise; that was the point, however — they were designed to be a negative incentive, even though Jeffrey Sachs today argues that the discretionary spending cuts are part of some grand Faustian Obama bargain).

No one really thought at the time the agreement was incredibly robust, and Standard and Poor’s responded by actually downgrading the United States’s credit rating from ‘AAA’ to ‘AA+.’

A short-term deal on New Year’s Eve 2012 — when lawmakers considered the so-called ‘fiscal cliff’ of both the scheduled increase of U.S. income taxes from Bush-era rates back to Clinton-era rates in addition to the sequestration cuts (among other austerity measures, such as the end of a holiday on the payroll tax) — achieved a compromise on tax rates, but pushed the sequestration issue until March 1.

That brings us up through today.  Congressional Republicans and the Obama administration have reached no deal and, within the next 24 hours, $85 billion in cuts are supposed to go into effect through the U.S. federal government.

Predictably, the sequester has become an increasingly loud issues in the past week (Andrew Sullivan thinks the United States should just push forward with the sequester, U.S. Federal Reserve chairman Ben Bernanke thinks otherwise).

The problem as I see it, is that House Republicans realize both that they are the beneficiaries of:

  1. a classic hold-up situation*, insofar as a dysfunctional government hurts U.S. president Barack Obama more than it hurts 535 disparate members of Congress — that becomes more true as the executive branch has gained more power (no matter how many times the Obama administration sends poor U.S. transportation secretary Ray LaHood out in front of the cameras to protest there’s simply not enough money for the U.S. government to process airport security in a timely manner), and
  2. a game of chicken** where the Republicans start off with a steering wheel that’s already four-fifths ripped off the car, due to the increased polarization of Congress (in no small part because of ideological purity tests that threaten incumbents with primary contests) and the increased insularity of Congressional districts (in no small part because of the decennial gerrymandering of those districts).

What’s fascinating about this situation — and what makes it so interesting to me in the world of non-U.S. politics as well — is that there are plenty of hold-up situations in international politics (e.g., basically everything that’s happened in the Doha round of negotiations in the World Trade Organization since 2001) and plenty of games of chicken (e.g., basically, take your pick of every dodgy election and subsequently contested result in the past decade from Kenya to Georgia), but it’s rare to see them combined in the same policymaking frankenstorm. Continue reading What game theory tells us about the sequester showdown

‘La bataille des chiffres’: EU leaders agree new budget deal


Guest post by Michael J. Geary

European Union leaders reached agreement Friday on the EU budget (the multi-annual financial framework or ‘MFF’) for the period from 2014 to 2020.European_Union  After months of bickering, the 27 member states signed off on a deal totaling €908.4 billion, and the European Parliament will vote on the budget in March.

The budget is geared towards two — some would say conflicting — goals and political constituencies.

On the one hand, politicians argued that spending should be mobilised to support growth, employment, competitiveness and convergence, in line with the Europe 2020 Strategy. At the same time, some EU leaders in the United Kingdom, Germany and in the Netherlands, made clear that ‘as fiscal discipline is reinforced in Europe, it is essential that the future MFF reflects the consolidation efforts being made by Member States to bring deficit and debt onto a more sustainable path.’  The result is a smaller budget than was agreed for the previous budgetary period (2007 to 2013), yet one that is expected to achieve greater results to help pull the EU out of its economic malaise. A ‘spend less, achieve more policy’ strategy in an era when one in four Spaniards are unemployed seems doomed to fail.

The result, however, is not wholly surprising. Over the last four years, austerity and cuts in public spending have become commonplace throughout the EU, so it should come as no shock that the EU institutions should also tighten their belts.

Speaking after the negotiations concluded, German chancellor Angela Merkel said, ‘The agreement is a good agreement as it gives predictability for investors to create growth and jobs.’  José Manuel Barroso, the European Commission president, no doubt privately disappointed with the outcome, publicly voiced support for the deal saying the budget was ‘an important catalyst for growth and jobs.’

UK prime minister David Cameron can also be very pleased with the result, given that the agreement marks the first time in the history of the EU that its budget has been scaled back.  Cameron had gone to Brussels threatening to use the veto if leaders failed to make savings in real terms. He singled out the exorbitant salaries paid to some of the EU’s top officials, some of whom earn close to €15,000 per month and are taxed at just 8%. During the last five years, national-level tax increases have been imposed in addition to freezes on public and private sector pay, while officials working in the EU institutions have escaped austerity.  Cameron was determined, during the talks on the budget, to cut administrative costs despite opposition from French and Polish leaders who feared any cuts to the EU budget would affect generous subsidies to farmers and structural and cohesion funds.

Cameron was clearly relieved that his call for budgetary reductions met with friendly ears at least among some EU colleagues.  Over the past twelve months, he had been busy building a coalition among the Dutch, German and Scandinavian member states (the EU’s main paymasters) to reduce the budget in real terms.

Although Cameron and Merkel may well find themselves at odds over the UK’s role in the EU over the next five years, with Cameron determined to ‘renegotiate’ its role and Merkel equally determined to forge ever closer fiscal and political union, budget politics may have been a useful vector to find common ground.  Indeed, Merkel and Dutch prime minister Mark Rutte ultimately became strong supporters of London’s push to force austerity on the EU itself.  The unlikely emergence of the Anglo-German alliance was perhaps the most intriguing element of the negotiations. Continue reading ‘La bataille des chiffres’: EU leaders agree new budget deal

‘Hollande will destroy the French economy in two days’

That blunt messaging is one of the reasons why Nicolas Sarkozy still has a shot to win reelection.

He also claimed that, if elected, Parti socialiste candidate François Hollande would turn France into another Greece.

All of this would be fabulously amazing positioning for a president whose record on balancing the budget is not stellar — public debt has gone up under his watch.  It’s more amazing when you consider that only in December, Sarkozy presided over France losing its ‘AAA’ credit rating from a major ratings agency.

Last week, Sarkozy pounced on the news that the French deficit for 2011, projected to be 5.7%, was, in fact, only 5.2% — never letting horrible be the enemy of terrible.

Even as unemployment hovers around 10%, last week’s GDP report also showed that France grew at a near-recessionary 0.2% pace in the final quarter of 2011.  Nonetheless, Sarkozy managed to turn even that into an opportunity to attack his opponent:

“The Socialists said France was in recession, as if they actually enjoyed it every time there was bad news for France,” Sarkozy told Europe 1 radio, announcing the 2011 deficit figure.

You cannot imagine Dominique Strauss-Kahn, for example, letting Sarkozy push him around like this.

Continue reading ‘Hollande will destroy the French economy in two days’