James Forsyth James Forsyth

Balls in fiscal isolation

Ed Balls has long said that America is the right comparison for Britain when it comes to how to deal with the deficit, contrasting the Obama administration’s fiscally loose policies with Osborne’s plan for fiscal tightening. This comparison has always been flawed; the dollar is the world’s reverse currency which gives Washington far more fiscal flexibility than HMG. But, even leaving that aside, the Obama administration is now — albeit under Congressional pressure — about to start cutting.  

By 2015, Obama’s plan will have reduced the US deficit by 8 percent of GDP. Osborne’s plan sees Britain reduces its deficit by 8.4 percent by 2015. Indeed, from next year the US will be tightening at a faster annual rate than Britain.

The balance in both deficit reduction plans between tax increases and spending cuts is pretty much the same. Both are, roughly, a quarter tax rises and three quarters spending cuts.  

Now, consensuses are not always right. But it clearly no longer credible for Balls to claim that Osborne is out of the mainstream or that the Obama administration proves that there’s an another way to address this problem.

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