Only health and international aid spending would be protected from the 25 percent cuts for government departments by 2015, the steepest fiscal spending reductions since the 1930s. Mr. Osborne also announced a two-year wage freeze for all but the lowest paid among Britain’s six million public servants and a three-year freeze on benefits paid to parents for rearing children, in addition to new medical screening for people claiming disability benefits, part of a bid to cut $16 billion from the annual welfare budget.
Mr. Osborne also announced a raft of tax increases, though he was at pains to say that the government’s plan to sharply reduce the country’s $1.4 trillion national debt would rest on making roughly four pounds in spending cuts for every pound in tax increases, a point of considerable political weight in a country that is already among the highest-taxed in Europe.
———————
As much as I favor pulic sector unions and social safety nets, I think what they’ve described above makes perfectly good sense, but I would also cut spending on foreign aid (not being cut in the proposed budget). I would also raise taxes on capital gains rather than increase the VAT.
Yes, these measures will result in a recession; but why do people think the economy is only supposed to go in one direction (up) for all eternity? Recessions are sometimes necessary to correct imbalances (like bubbles!) and reallocate capital to more productive and useful sectors.
No matter what, we’re going to have to pay for the excesses and misallocations of the past few decades. Might as well get it over with as quickly as possible. The first one to cleanse will be the first one to prosper when the time is right, IMHO.
