UK Proposing Budget Cuts and Tax Increases

Palace of Westminster in London

A new type of budget was proposed for the UK:

JUNE 23, 2010

Osborne’s Anti-Keynesian Budget

Another government abandons the idea that it can spend its way back to prosperity.

George Osborne presented the U.K. government’s emergency budget yesterday, with spending cuts and consumption-tax hikes intended to shrink public borrowing to 1.1% of GDP by 2016, down from 10.1% of GDP this year. Nearly 80% of that retrenchment comes as spending cuts rather than tax increases. The Chancellor of the Exchequer’s cuts are, on balance, good news for the British economy. Even more welcome, though, is that Mr. Osborne’s budget is the latest to depart from the short-lived Keynesian consensus that government can spend its way back to prosperity.

Lord Keynes once famously said that in the long run, we’re all dead. It seems the post-panic revival of wanton deficit spending didn’t have to wait that long to return this idea to its grave.

“Some have suggested that there is a choice between dealing with our debts and going for growth,” said Mr. Osborne. “That is a false choice.”

. http://online.wsj.com/article/SB10001424052748704853404575322651850598306.html?mod=googlenews_wsj

Whether the coalition government of David Cameron (David Cameron and the Direction of the United Kingdom) can survive this is another matter. Coalition governments don’t tend to handle these types of situations very well. Yet, unlike with Greece, the EU has already stated that it will not bail out Britain (see EU Will Not Come to Britian’s Financial Aid). So, even the coalition partners likely recognize that something needs to be done.

But, I suspect that the United Kingdom will have various compromises, and will still end up with having too much debt.

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