Government should adopt balanced budget plan for growth: SMF response to IMF World Economic Outlook

In the World Economic Outlook, published today, the International Monetary Fund advised Western Governments to adopt a balanced budget plan for growth. In response SMF Director Ian Mulheirn said:

“The IMF has rightly recognised that the choice facing Governments is not simply a choice between austerity or borrowing more in pursuit of growth. Pursuing a potent growth strategy within the existing deficit reduction plans would simultaneously strengthen the Government’s fiscal credibility in the bond markets and boost economic output – cutting unemployment by potentially hundreds of thousands.”

Last month the SMF published a plan for growth which called on the Chancellor to adopt a new fiscal strategy focusing on the 'multiplier effects' of different policies, arguing for careful discrimination between policies that boost GDP and those that don't. It called for the immediate implementation of growth friendly cuts - including axing the winter fuel allowance and higher rate pensions tax relief - and for the money to be  channelled into transport and energy infrastructure projects that can boost output in the short-run and are vital for long-run economic growth.

Ian Mulheirn continued: “Today’s IMF report is a timely reminder that austerity alone is not a growth plan. Our plan would boost economic activity by £10bn in each of the next three years without altering the existing deficit reduction plan, creating a stimulus twice as potent reversing last year's VAT rise. Instead of sitting on its hands and accepting austerity, the Government should heed the IMF’s – and the SMF’s – advice and adopt a balanced budget plan for growth.”

Notes to Editors

• In the World Economic Outlook, the IMF states: "given concerns about fiscal room, a balanced budget fiscal expansion could support activity and employment while keeping fiscal  consolidation plans on track. For example, temporary tax hikes matched by increases in government purchases - for much-needed infrastructure - could lead to an almost equal rise in output". 

• Osborne’s Choice: Combining fiscal credibility and growth is by Ian Mulheirn. Download a copy.

• The paper includes responses from a number of respected economic commentators, including Robert Shiller, Gavyn Davies, Evan Davis and Sir Richard Lambert. Full responses can be viewed here