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Tax take vital for Osborne surplus pledge

27/01/15

George Osborne has outlined the rationale for a public finance surplus, but achieving this may be difficult.

With government having run a huge structural deficit in recent years, the current parliament has seen the issue of restoring stability to the public finances given top priority.

Of course, the austerity programme undertaken in the UK has been controversial, both in its detail and the fact that it has been going on at all, although most other European countries have been cutting their public spending too.

However, chancellor George Osborne has ambitions of going much further. He has spoken before about wanting to take the public finance situation into surplus, but has now outlined this ambition in detail in a speech to the Royal Economic Society.

In it, he pointed to the examples of Canada in 1998 and Sweden in 2000 as countries that made the decision to focus on creating surpluses. Attacking the idea that his plan is ideological, Mr Osborne noted both decisions were taken by centre-left governments.

"In both cases the results speak for themselves - Sweden and Canada have had amongst the strongest public finances of any developed economy during the last eight years and neither has had to make large cuts to public spending as a result of the crisis," he added.

However, to run a surplus this way cannot be done easily, and while more cuts would be part of the policy, ensuring as much tax is collected as possible is vital.

For that reason, those seeking tax jobs may soon be tasked with doing more to battle against the avoidance of them, either by corporations or high net worth individuals.

Indeed, if Mr Osborne is still chancellor after May's election he will need to balance his commitments on the public finance with pledges of rising public investment in infrastructure in line with increases in gross domestic product, not to mention major projects like high speed rail.

Mr Osborne ended his speech on the optimistic note that "there is no reason why Britain cannot be the richest major economy in the world,", but unless growth translates into sufficient tax revenues, even that may struggle to bring about the benign public finances Mr Osborne seeks.

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