Budgets are fundamentally about balance. There is no one, correct formula to judge whether a budget is good or bad. Most are a mixture of welcome and dubious measures. Many fall in between the two. They are also, inevitably, an exercise in planning against uncertainty. No one knew when the budget for 2020 was framed that it would have to be torn up after the pandemic hit, or that the 2022 package was rendered at least in part obsolete as energy prices soared following the full-scale Russian invasion of Ukraine.
Yet these two events carry an important message. In what feels like an increasingly uncertain world, caution has a value and room for manoeuvre can be invaluable. This is all the more the case because the future of corporate tax receipts is unclear and economic growth is slowing. There should be a premium on prudence in finalising Budget 2024. That does not mean doing nothing. What it does mean is being careful and strategic and planning for the State finances to remain in significant surplus.
Inflation has changed the backdrop to tax and spending decisions fundamentally – and indeed raises some longer-term questions about how budgets are presented. For next year, many of the budget measures will, in effect, be doing no more than maintaining existing service levels and protecting welfare recipients and taxpayers from the impact of inflation.
Part of the package will consist of once-off measures to help households with the cost-of-living. Here, the emphasis should be firmly on focused measures aimed at those most in need. Otherwise a lot of State cash will be wasted giving money to households who don’t need it, as well as helping many who do. The surge in energy prices and the rise in the cost of many other imports has left the economy worse off and to pretend that all households can be fully protected from this by the State is a dangerous fiction.
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To make the budget balance even more difficult, the domestic economy is operating at full capacity and so there are dangers in further fuelling the rate of inflation. This is another reason to be cautious with once-off measures.
Budgets can only achieve a certain amount. But the package gives the Coalition the opportunity to lay out its stall for its final period in office and what it believes the strategic priorities should be. More cash is being set aside for investment – here the big challenges is the pace of delivery. And the Government has promised a plan for new funds aimed at helping to meet future needs.
It is important that the budget sets out a strategy on these key issues, rather than just being an exercise in dividing up spare cash. And that it balances giveaways with an appropriate level of prudence, as some of the dangers and costs ahead become increasingly clear.