The deficit: It’s a labour market thing

Flip Chart Fairy Tales

More from the Resolution Foundation’s report on public finances. (See yesterday’s post.)

All the projections for deficit reduction could be thrown off course by tax revenues – or the lack of them. The importance of even fairly small variations in the tax take is illustrated on this chart. If revenue growth turns out to be one percentage point higher than the OBR forecast, then things start to look much better. Whichever path the next government chooses, the current surplus is achieved a year earlier than planned. If, on the other hand, revenue growth comes in one percentage point lower than the OBR forecast, the chances of achieving a surplus by the end of the decade are pretty much scuppered.

Screen Shot 2014-11-27 at 19.16.25

This shows how much of the fiscal plans of all parties are dependent on developments in the labour market. Despite recent economic growth, tax receipts have fallen well short of what the government…

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