Endless speculation about what the Chancellor’s budget means and theberal Democrats. real state of public finances could become a thing of the past when resource accounting and the fiscal responsibility code come into effect next year.
Public finances will be presented, rather like company accounts, as the nation’s profit and loss balance sheet. That should remove the mystery from the budget process and open up discussion of the real issues of what we can afford and what our priorities should be.
Fiscal responsibility legislation will require the government to produce regular updates on the state of public finances. The practical benefits of this should be greater transparency, flexibility and efficiency. It should also end the mad rush to spend at the close of the financial year, aimed at providing a base figure for next year’s spending round.
New Zealand, which has had this system in place since 1989, has seen a remarkable turnaround in the state of public finances and fewer budget surprises.
New Zealand has also led the way on fiscal responsibility legislation.
Had that already been established in the UK, there would have been no #5 billion black hole in Gordon Brown’s last budget arising from an adjustment to the outgoing government’s inflation forecast.
A pre-election update would have been published several weeks before polling day, setting the inflation base as a given factor regardless of who won the election.
Similarly, we would have had a clear statement as to exactly what resources were allocated to the government’s declared priorities of improving education and cutting hospital waiting lists.
It would not have been possible for the previous government to pledge income tax cuts without clearly stating the offsetting indirect tax increases.
The Labour Party’s pledge not to raise income tax would be seen to be similarly balanced by the need to increase taxes, for example, on business and pensions.
If a government wants to reduce the total proportion of GDP taken in tax, then it will have to spell out in detail exactly which activities the state would be pulling out of, revealing the consequences for individual citizens.
Malcolm Bruce is MP for Gordon and the Treasury spokesman for the Liberal Democrats
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