Debts, Deficits, Structural Deficits and Interest Rates
Lord Myners spoke in the House of Lords Yesterday.
Amongst other things he said:There is nothing progressive about a Government who consistently spend more than they can raise in taxation, and certainly nothing progressive that endows generations to come with the liabilities incurred by the current generation. There will need to be significant cuts in public expenditure, but there is considerable waste in public expenditure. I have seen that in my own experience as a government Minister. I hope that the Government will pursue with vigilance their search for waste and efficiencies without making cuts which are injurious to the provision of public service. The difference between the Government and the previous Government was on the issue of timing and when those cuts should take place.
There was flawed thinking about job creation in the past. I found it very frustrating to sit in meetings with some of my fellow Ministers talking about creating jobs in the green economy and biotechnology. The Government cannot create jobs. The Government can create an environment that is conducive to the creation of jobs, but they cannot create jobs and we mislead ourselves if we believe they can. We need to create a context for competition, incentives for capital investment, protection for intellectual property and promotion of high standards of governance.
What we face is a real challenge. The challenge is to keep the interest rate that government pays for its debt as low as is practical. It is the recent discussions about ratings that drive the need for a rapid reduction in the deficit.
Some people mix up the terms deficit, structural deficit and debt as if there is no difference between them. The deficit is the government's borrowing during one financial year. The amount of that deficit that is structural is that which doesn't disappear as a result of growth. The debt is the total of borrowings for every year.
It is the debt upon which we pay interest.