As we contemplate a new government, the must-read government document on the public finances has to be Fiscal Policy: Lessons from the Last Economic Cycle. It was published in November 1997; it is really short; and it is extremely funny in retrospect.
In fact, I remember thinking it was quite funny at the time, because it desperately tried to suggest that the 1993 to 1997 fiscal tightening was a failure. That might have seemed true a year earlier but did not come late 1997, when the books were already close to being in balance. The serious point to note is that fiscal consolidations often start slowly but then gather pace, so people should not be too impatient.
This morning, great digging by Financial Times journalists has come up with the estimate that the Treasury will raise £1.5bn from its supertax on bank bonuses, considerably more than the chancellor’s £0.5bn estimate in December, but less than the £4bn banks were predicting in January.
Government insiders told the FT that the chancellor intended to use the money for “small targeted measures”, perhaps including schemes to tackle high youth unemployment and industrial support. Of course, in his Budget, expected on March 24, Alistair Darling will not have got his hands on the cash yet. The tax is payable only at the end of August 2010. But since that is just a timing issue, it will not stop the distribution of goodies ahead of the election, expected on 6 May. The chancellor has three sorts of sweets from which to choose.
The markets have spent the day digesting a Nikkei story that says the Bank of Japan will decide to lend at close to zero per cent for six months to a year, as well as the three-month term it introduced in December, at one of its April meetings.
I’m pretty confident that six-month or one-year lending is the BoJ’s favoured tool – if it decides to ease monetary policy further – but the certainty about April is odd. If policy needs loosening then why wait? What has changed in the economy that makes the BoJ want to change its policy? One possibility, I suppose, is that the Bank’s semi-annual outlook (due on April 30th) will provide a forecast changing fig leaf for a new policy – but can that already be decided?