Deficit versus growth – the Chancellor’s big gamble
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The proposed cuts in public spending announced by British Chancellor George Osborne are unprecedented in recent memory, as is the depth of the recession. All agree, something had to be done, but will the massive cutbacks pay off?
Observers in other countries who face comparable deficit crises and challenges will certainly follow the developments in the UK with interest. They will want to see if the Osborne gamble pays off, and if it’s a model worth betting on.
Gambling with economic growth
Osborne’s big challenge is the maintenance of economic growth despite the huge 25 percent cut in public spending by 2015.
“Labour lost its way as custodian of the public sector,” says Simon Jenkins in the left-leaning Guardian newspaper, calling Osborne’s budget a gamble. If it works, Jenkins admits, it will be Thatcherism’s (small government, low taxes, incentives to the private sector) finest hour –a bitter pill for the British left to swallow.
In terms of welfare, cuts worth 11 billion pounds (13 billion euros) will see child benefits frozen for three years, with maximum limits imposed for housing benefits and a tougher assessment for disability allowance. Public sector salaries will be frozen for two years.
Not everyone, however, is convinced that cuts in public spending are a recipe for disaster. Some international observers hope the Osborne gamble will work and become a beacon for change elsewhere.
Respected French financial daily Les Echos points out that US President Barack Obama had asked G20 ministers to prioritise growth over deficit reduction to safeguard the global recovery.
Les Echos columnist Nicolas Barré writes: “Cameron’s government has done exactly the opposite, in the firm belief that this is the only way to fix [Britain’s] economy in the long term.
“How well thought-out is this gamble? In France, we have seen that 30 years of deficits and growing public debt has bought not more, but less growth,” argues Barré. “The success or failure of the British experience will be instructive.”
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