Outlook: Questions over public finances
Wednesday 19 August 1998
Yesterday saw the publication of July's public finance figures. Compared to July last year, income tax receipts were up by getting on for pounds 2bn. Compared to July 1996, the numbers were up by over pounds 2.5bn. Some in the City saw this as yet more evidence that self-assessment has boosted government revenues on a permanent basis. The new regime, it has been argued, has terrified us into coming clean about exactly how much we earn.
HM Treasury officials have been positively gobbling up this rather pleasing view. Going forward, the government's revenue projections have assumed that self-assessment will permanently boost income tax receipts. Unfortunately, there are a few dissenting voices, most notably those spoil sports on the Bank of England's Monetary Policy Committee (MPC).
The MPC highlighted concerns about the government revenue projections in the minutes of July's rate meeting. According to the MPC, there is a "degree of uncertainty" about the revenue projections, and in particular about the assumption that "more of the recent buoyancy associated with the move to self-assessment would be permanent". According to one school of thought, we'll slip back into our old tax-avoidance ways once the novelty of self-assessment wears off. Another says that the recent leap in income tax receipts is more to do with the buoyant economy than Hector the Inspector. Either way, the argument that self-assessment has permanently boosted receipts should be taken with a pinch or two of salt.
There are other, more pressing, concerns about the government's borrowing projections. The Treasury's forecasts for economic growth - 1.75 per cent in the current financial year and 2 per cent in 1999-2,000 - are looking ever more optimistic with each passing day. The Bank of England is only the latest forecaster to downgrade its growth predictions. The chances of the Government achieving its aim of balancing the books by the millennium look increasingly slim, with or without Hector's helping hand.
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