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Structural deficit nonsense

I say this because his fiscal mandate – the framework for his fiscal policy – is nonsense. His aim is “to achieve cyclically-adjusted current balance by the end of the rolling, five-year forecast period.” This contrives to make policy depend not upon one unknown variable, but two.

One unknown is simply the state of the economy in five years’ time. If we fall back into recession by then a balanced budget would be inappropriately tight. Granted, the OBR isn’t forecasting this. But this means the forecast of a balanced budget by then means little more than “the public finances will be OK if the economy is” – which isn’t terribly illuminating.

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