Balancing revenue and expenditure

Parties can no longer promise all gain no pain nor can they cling on to power by unsustainable pre election tax cuts. The problem is that nobody seems to have noticed.

The unthinkable is happening. There is a greater realisation that eurozone member states will have to forego some of their national budgetary sovereignty if Europe's single currency is to survive in the long run. This conviction is driving European Commission proposals for prior surveillance and peer review of national budget plans.  With Italy and Spain on the brink of bankruptcy, this step seems unavoidable.

If this happens, political parties aspiring to win power will be expected to present balance sheets clearly outlining their plans on spending and expenditure. Parties promising cuts in taxes and greater social spending will be exposed as charlatans who would fail EU scrutiny on their first budget. Neither will it be possible for parties to cling on to power by cutting taxes in pre-electoral budgets.

The distinctions between left, right and centre will have to be shown by the workings on the balance sheet they present to voters. Parties prioritising social spending or infrastructural projects will have to explain how they plan to increase revenue to make up for the extra expense.

Parties prioritising tax cuts or subsidies for utilities will have to explain what cuts they intend making in social expenditure to make up for lost revenue. Centrist parties will also have to show how they intend to juggle their way towards fiscal targets. Surely this leaves room for flexibility. Costs can be cut through greater transparency and accountability while taxes on labour can be reduced, while others on speculation increased.

But people will expect more detail rather than declarations of principle. There is also room for shifts in expenditure or in taxation but avoiding hard choices will be more and more difficult. Sticking up for sectoral interests (be it greedy bankers, speculators or privileged sectors of the public sector) will become more of a liability in a climate where any hint of any sector being privileged will create resentment.

One unfortunate consequence of this climate could be an attack on vulnerable categories whose dependence on welfare will be depicted as privilege by right-wing groups. But there could also be more room for ideological flexibility as it will be increasingly difficult for centre-right governments not to tackle speculative wealth and for left-wing governments to defend inequalities between different categories of workers.

These are interesting times. The populist illusion based on the all gain no pain formula has been burst and thank God for that.

Another lesson of the current crisis is that cuts in social spending can undermine cohesion and social stability. Although it is banal to blame riots in London on recent cuts in spending, it is equally stupid to ignore the consequences of spending cuts on the social fabric. There is a limit to how much one can cut without hurting the most vulnerable or impoverishing parts of the middle class. Ironically calls for cuts in spending contrast with widening social inequality in vital sectors like health and the need for greater investment in education to encourage social mobility and reduce dependence on welfare.