PrefBlog

The Parliamentary Budget Officer has released a Pre-Budget Economic and Fiscal Briefing and it makes for news that’s as bad as may be expected:

Before accounting for any new fiscal measures to be introduced in Budget 2009, this more sluggish economic outlook suggests a further deterioration in the budget balance relative to PBO’s November EFA.
o The updated economic outlook based on the PBO survey average results in a status quo budgetary deficit reaching $13 billion in 2009-10, equivalent to 0.8% of GDP.
o On a cumulative basis, status quo budget deficits amount to $46 billion over 2009-10 to 2013-14.
o PBO currently judges that the balance of risks to its fiscal outlook is tilted to the downside, reflecting the possibility of weaker-than-expected economic performance and relatively optimistic assumptions about corporate profits.
o The January survey’s low forecasts are used to illustrate potential downside economic risks and imply significantly larger deficits on a status quo basis, averaging $21 billion annually over the next five fiscal years.

…
Further, rough estimates indicate that the Government has a structural surplus of about $6 billion — though more work needs to be undertaken in this area. Thus, any permanent fiscal actions (e.g., permanent tax cuts or permanent spending increases) exceeding $6 billion annually would likely result in structural deficits, limiting the Government’s ability to manage future cost pressures due to, for example, population ageing

The total effect of the recession over the period of 2009-14, according to the average scenario (Table 2 of the report) is $45.9-billion – and this is before any special spending; the deficit arises from automatic stabilizers and revenue decreases. It will take many, many years of Spend-Every-Penny’s rosy scenarios before that money is paid back.

This entry was posted on Wednesday, January 21st, 2009 at 4:19 pm and is filed under Interesting External Papers. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.