Latest news with #fiscalpolicy
Telegraph
10 hours ago
- Business
- Telegraph
Reeves has already done irreversible damage to Britain
Less than a year after taking office, Rachel Reeves already looks to have inflicted irreparable damage on Britain's economy. Last autumn's budget saw the largest fiscal loosening of any event outside of July 2020 since the Office for Budget Responsibility's foundation, with a spending increase of almost £70bn enabled by £36bn in tax raids and a tweak to definitions of government debt. This had three easily foreseeable effects. The first was that the choice to raise taxes through employers' National Insurance, and therefore directly on payrolls, rather than slower-adjusting wages and prices, contributed to a sharp contraction in the labour market that a rise in public sector spending does not appear to have fully offset. The number of payrolled employees dropped by 274,000 between May 2024 and May 2025, with April's fall of 109,000 the steepest monthly decline since the pandemic. While some employers are laying staff off, others are cutting back on plans to hire, and the result is that there were 150,000 fewer vacancies in the latest quarter of data than a year before. The second predictable consequence was that a massive expansion in government borrowing would make future tax rises more likely. Gilt yields have risen, and with the 30-year now near its post-1998 peak, investors are displaying concern over the scale of the borrowing over the coming years of this Parliament. Growth forecasts, meanwhile, have fallen. The result is that the Chancellor has a razor-thin buffer against her fiscal rules and may well be required to cut spending or raise taxes in the autumn. And this brings us neatly to the third consequence of Reeves's Budget: people who can see where this is going, or are already in line to feel the pain, are getting out while they can. You or I might have viewed it as an obvious consequence; taxes specifically targeting some of the most internationally mobile groups in your country have at least one clear route through which they might spectacularly backfire. Regrettably, however, the exodus of millionaires from Britain reported by advisers over the last year still seems to have caught Rachel Reeves by surprise, and in the process created a new problem. Britain's welfare state rests to a great degree upon a narrow pillar of high-income taxpayers, with the top 1pc of earners accounting for 29pc of the income tax take. Now consider which groups Labour's taxes targeted: those with assets, by raising capital gains. Those who wished to provide for their children, by expanding the scope of inheritance tax and levying VAT on private school fees. And those who are in the country temporarily, by scrapping non-dom status in favour of a four-year residence-based status, with brutal inheritance tax provisions coming into force after that period. Small wonder that the wealthy seem to be fleeing Britain. Small wonder, too, that Reeves appears to be considering an about-turn on part of her non-doms tax raid. But having killed the goose that laid the golden egg, resuscitating it may prove rather more of a challenge. A partial reversion to the status quo ante might staunch the bleeding and prevent further departures, but it's far from clear that it will lure back those who've already left – particularly given that pressing need to raise taxes again over this Parliament, and Labour's clear preference for doing so by taxing the rich first. This would create a real headache for the Chancellor. The strategy of 'taxing the rich' already had limited room left to run. Robert Chote, the former OBR chairman, remarked a decade ago that the minimal impact of the decision to cut the rate from 50p to 45p had shown we were very likely 'strolling across the summit of the Laffer curve '. A smaller tax base of wealthy people would mean attempts to shift the cost of Labour's spending on to that group would mean much higher increases in individual tax burdens – likely triggering a renewed exodus. In other words, the money is going to have to come from somewhere else. In the last year or so, French users of the social media site X came up with the delightful meme of 'Nicolas, 30 ans' – the 30 year old graduate working in a good job, who finds their salary drained by taxes that pay for public spending on other people; benefits for the unemployed, pensions for the retired, aid for the third world, and so on. 'Nicolas' hasn't had a much better time of it in Britain. The vast majority of the rise in government spending since 2019 has gone on items that the young and employed have relatively little use for – interest on the debts accrued by previous generations, welfare, the NHS – while the tax burden has risen to a post-war high. Regrettably, Nicholas might also be Rachel Reeves's best target. Compare data on the tax 'wedge' for a single worker on average wage with government spending as a share of GDP, and you'll replicate Dan Neidle's finding that no OECD country spending as much as Britain does so with a tax burden for the average worker as low as ours. If we aren't willing to cut spending to emulate the likes of the USA, Australia and Switzerland, then we will likely raise taxes to match countries like France. And Labour has no visible intention of cutting spending. While Reeves might have failed to predict the obvious consequences of her policies, it's not hard to see where she might go from here. The Labour Party is winning its war on private wealth. Now, average earners will pay the price.
National Post
a day ago
- Business
- National Post
Ottawa's fiscal watchdog says it's in the dark on federal government's fiscal targets
The parliamentary budget officer says he can't properly assess whether the federal government is on track to meet its fiscal targets because the Liberals' new budget benchmarks haven't been defined. Article content Without a spring budget, that means Ottawa's budgetary watchdog is in the dark on how recently announced plans to boost Canada's defence spending and cut income taxes will affect the government's fiscal position. Article content Article content Article content Prime Minister Mark Carney announced a plan before the spring election to split Ottawa's budget into operating and capital streams, and to balance the operating side in three years. Article content Article content Parliamentary budget officer Yves Giroux says in a new analysis that the Liberals haven't yet defined what will be included in this operating budget, so there's no way to say if the federal government is on track to meet its new fiscal targets. Article content The government's old fiscal anchors were based on keeping annual budget deficits below one per cent of GDP and keeping debt-to-GDP on a declining path over the medium term. Article content Giroux does say the federal government's deficit for the last fiscal year likely came in at $46 billion, roughly $4.3 billion lower than estimates in March, thanks in part to higher corporate tax revenues and the imposition of counter-tariffs against the United States. Article content
CTV News
a day ago
- Business
- CTV News
Budget watchdog says he's in the dark on Ottawa's fiscal targets
Prime Minister Mark Carney responds to a question during question period in the House of Commons to Parliament Hill in Ottawa on Wednesday, June 11, 2025. THE CANADIAN PRESS/Sean Kilpatrick OTTAWA — The parliamentary budget officer said Thursday he can't properly assess whether the federal government is on track to meet its fiscal targets because the Liberals' new budget benchmarks haven't been defined. Without a spring budget, that means Ottawa's budgetary watchdog is in the dark on how recently announced plans to boost Canada's defence spending and cut income taxes will affect the government's fiscal position. Prime Minister Mark Carney announced a plan before the spring election to split Ottawa's budget into operating and capital streams, and to balance the operating side in three years. Parliamentary budget officer Yves Giroux said in an updated economic and fiscal monitor report that the Liberals haven't yet defined what will be included in this operating budget. 'Without a clear definition of what counts as operating spending, it's impossible to evaluate whether the government is on track to meet its new fiscal anchor,' Giroux said in a media statement. Carney announced plans earlier this month to reach the NATO defence spending target of two per cent of GDP this fiscal year with $9.3 billion in new funding — a rapid expansion of his own previous promise to hit those levels by the end of the decade. The prime minister promised $4.3 billion in aid for Ukraine at the G7 summit earlier this week. The federal government also has introduced plans for a one-percentage-point cut to the bottom income tax bracket, which the PBO pegged at a net cost of $28 billion over five years in a separate report released Wednesday. The government's old fiscal anchors were based on keeping annual budget deficits below one per cent of GDP and keeping debt-to-GDP on a declining path over the medium term. The PBO's latest report notes that the federal government could hit its operating budget targets but still see the debt-to-GDP ratio rise due to additional borrowing to fund, for example, accelerated military spending. 'This means that the government could achieve its fiscal objective and yet be fiscally unsustainable,' the report says. Parliamentarians 'may wish to seek additional clarity' on how the government intends to define these measures and keep federal finances stable, the report concludes. The PBO does say the federal government's deficit for the last fiscal year likely came in at $46 billion, roughly $4.3 billion lower than estimates in March, thanks in part to higher corporate tax revenues and the imposition of counter-tariffs on the United States. The office's updated economic and fiscal projections predict economic growth will stall in the second quarter as Canada's trade war with the United States sinks exports. This report by The Canadian Press was first published June 19, 2025. Craig Lord, The Canadian Press
Yahoo
a day ago
- Business
- Yahoo
Ottawa's fiscal watchdog says it's in the dark on Ottawa's fiscal targets
OTTAWA — The parliamentary budget officer says he can't properly assess whether the federal government is on track to meet its fiscal targets because the Liberals' new budget benchmarks haven't been defined. Without a spring budget, that means Ottawa's budgetary watchdog is in the dark on how recently announced plans to boost Canada's defence spending and cut income taxes will affect the government's fiscal position. Prime Minister Mark Carney announced a plan before the spring election to split Ottawa's budget into operating and capital streams, and to balance the operating side in three years. Parliamentary budget officer Yves Giroux says in a new analysis that the Liberals haven't yet defined what will be included in this operating budget, so there's no way to say if the federal government is on track to meet its new fiscal targets. The government's old fiscal anchors were based on keeping annual budget deficits below one per cent of GDP and keeping debt-to-GDP on a declining path over the medium term. Giroux does say the federal government's deficit for the last fiscal year likely came in at $46 billion, roughly $4.3 billion lower than estimates in March, thanks in part to higher corporate tax revenues and the imposition of counter-tariffs against the United States. This report by The Canadian Press was first published June 19, 2025. Craig Lord, The Canadian Press Sign in to access your portfolio
New York Times
a day ago
- Business
- New York Times
Record Debt Limit Increase Would Break Republican Precedent
For years, Republicans have warned about the government's reliance on borrowed money to pay its bills. That stance has often led to standoffs over raising the nation's borrowing cap, with Republicans insisting that any increase in America's so-called debt limit be paired with spending reductions. This year, the party of fiscal conservatism is poised to discard that philosophy as Republicans prepare to press ahead with domestic policy legislation that combines nearly $4 trillion in tax cuts with a $5 trillion increase to the debt limit. An increase of that magnitude would be a record and underscore the ideological flexibility that many Republicans are willing to embrace when they are in power. G.O.P. lawmakers are prepared to push through the debt limit increase with only votes from their party, through a budget process called reconciliation. That is making it harder for Republicans to maintain their fiscal hawk credibility, prompting some resistance from a few lawmakers who have warned that they may not vote for the bill if it includes such a large increase in the borrowing cap. The national debt is approaching $37 trillion. This week, Senate Republicans unveiled legislation that would raise the debt limit by $5.1 trillion, higher than the $4 trillion increase that House Republicans voted for in their bill last month. Such an increase would likely extend the nation's ability to borrow into 2028. Most economists and analysts welcome a reprieve from debt limit brinkmanship that has destabilized the economy in recent years. However, raising the debt limit along with legislation that is projected to add $3 trillion to the national debt over a decade suggests that lawmakers are overlooking the nation's long-term fiscal problems. 'The most stunning thing is that this massive debt-ceiling increase would be paired with a massive increase in new borrowing, whereas in the past the pressure has been to couple them with debt decreases,' said Maya MacGuineas the president of the bipartisan Committee for a Responsible Federal Budget. Want all of The Times? Subscribe.
