Issue one: We have a very big fiscal deficit
Everyone knows it, but it never hurts to remind ourselves just how big it is. It is massive, huge, gigantic, beyond large, humungus, excessive, and gargantuan.
It is running at around 10 percent of GDP.
Issue two: The deficit is big mostly because of government expenditure
Tax collections have fallen. The bulk of revenue falls occurred in 2008, when VAT was foolishly cut. That has now been reversed. However, public expenditure has continued to grow in terms of GDP.
Issue Three: The Coalition government want to cut the deficit by reducing expenditure
The coalition wants to cut the deficit by around 10 percentage points of GDP by 2016. Three quarters of the adjustment will fall on expenditures.
What does Alice think?
She thinks the adjustment lacks ambition and would like to see a more rapid decline in the fiscal deficit.
Her maxim is "if in doubt, cut it out".
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