Tuesday, October 21, 2008
Lib Dem tax cuts would be fiscally neutral
The other day I wrote a posting asking whether the Liberal Democrats can still credibly promise tax cuts given the gravity of the global economic situation. There was a flurry of comments, but I was not near a computer while it happened and so could not take part in the debate.
That debate concerned the desirability or otherwise of Keynesian reflation. In fact, the proposed Lib Dem tax cuts would be paid for by spending cuts so they would be fiscally neutral. They would not affect the total level of spending in the economy.
This was news to Dianne Abbott on This Week a few weeks ago. She obviously thinks that Keynesian reflation means more public spending. But tax cuts that were not funded by a reduction in public spending might do the job just as well.
More alarmingly, it would also be news to our current chancellor. Last year he complained that Tory tax cuts would "take £21 billion out of the economy".