1. The Budget won't increase long-run trend GDP growth.
This is simply because there is very little that any feasible economic policies can do on this score. A paper by John Landon-Lane of Rutgers University and Peter Robertson of the University of New South Wales has pointed out that, over the long run, most western economies have grown at much the same rate as each other, give or take statistical noise. This, they say, suggests that long-term growth rates "are insensitive to national policies".
Trend growth depends largely upon global technical progress, which Budgets can do little to affect.
You might object here that radical tax-cutting Budgets can improve incentives for entrepreneurs and innovators. Sadly, though, this claim doesn't leap out of the historical data. The most significant tax cuts of recent times came in Nigel Lawson's 1988 Budget, in which he cut the top tax rate from 60 to 40 per cent, and abolished several tax bands. In the 23 years since then, real GDP growth has averaged 2.1 per cent a year – less than the 2.4 per cent in the previous 23 years.You can read this fact in one of two ways. You could argue that it shows that tax cuts for the rich depress long-run growth. Or you could argue that it shows that long-run growth depends upon forces that are more important than tax changes. Take your pick.
2. It won't increase short-run GDP growth, either.
I say this simply because the net change in fiscal stance in this Budget is likely to be small. It's unlikely that we'll get tax cuts or spending increases of more than £3bn overall. This is chicken-feed in a £1.5 trillion economy.
The only way to believe that the Budget will materially affect near-term growth is to believe that there are very large fiscal multipliers. But if you believe this, then you must be highly critical of the macroeconomic consequences of the squeeze on public spending announced in 2010.
3. The Budget does not determine public borrowing.
We know this for a simple reason. If the Budget set government borrowing, then its forecasts of it would be accurate. But they are not. Since 1999, the average error in Budget forecasts for public sector net borrowing in the coming fiscal year (eg, 2007's Budget forecast for borrowing in 2007-08) has been £12.6bn, equivalent to around 1 per cent of GDP. And this is an average. At turning points in the economic 'cycle' – such as in the boom of 1999-00 or recession of 2008-09 – the errors have been much bigger.
There's a reason for this. Government borrowing is the counterpart – by definition – of private sector saving. If the private sector suddenly saves more or borrows less, as it did in 2007-08, then government borrowing will soar. And if the private sector decides to borrow more (as it did in 1999-00), government borrowing will fall. Because Budgets have little influence over private sector decisions to save or borrow, so they have less influence upon government borrowing than chancellors pretend. All that talk of 'prudence' is a manifestation of a common cognitive bias: the illusion of control.
Now, you might find all the above rather heterodox. You certainly shouldn't, because it is entirely consistent with another fact about Budgets: that they usually have very little effect upon share prices overall.
If it does seem unusual, it could be because you've fallen victim to a cognitive bias. Discussion of Budgets is dominated, naturally, by politicians and political reporters. But these are a biased sample. People become politicians or political reporters because they believe that politics is important – and, indeed, because they're likely to overestimate its importance. They are therefore prone to overstate the significance of Budgets, just as cheese-makers overstate the social importance of cheese. There's a name for this bias too: deformation professionelle.
And because such people make the most noise, information cascades might lead others to infer that Budgets are important. But that ain't necessarily so.
