Quote:
Originally Posted by Jaggy001
How is iScotland going to deal with the 9% deficit?
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From George Kerevan
''HOORAY for public-sector deficits. Let’s get this straight in the current brouhaha over the latest Scottish Government Expenditure and Revenue figures, aka GERS.
At this time, with the global economy mired in semi-permanent deflation, the correct government response anywhere is not just to run a budget deficit but to increase it. In fact, many economists – including fervent defenders of neoliberal orthodoxy – are talking about the need for so-called “helicopter money”, by which the central bank simply prints cash and puts it directly into your bank account to spend, no strings attached.
So it defies logic that in the middle of this grave economic crisis the Unionist camp is busily using a putative Scottish budget deficit for last financial year (2015-16) as a reason to oppose independence. If Scotland were already independent – and leaving aside the fact that, like Norway, we would have run our economy very differently from the UK in the past decades – any Scottish Government would be being praised for boosting spending in order to haul Europe and the rest of the British Isles out of deflation. Firms in England would be clamouring for their own government to follow suit.
According to GERS, Scotland’s notional budget deficit last year was 9.5 per cent of GDP. Let’s take that as correct for the moment, though I have always held that the GERS figures understate Scottish tax revenues – a lot of tax generated north of the Border is currently recorded as accruing in England. Now 9.5 per cent of GDP is high for normal times, but not when the global economy is mired in deflation and major companies in the US and UK are sitting on piles of cash rather than investing, because they can’t find profitable outlets for their money. In these peculiar conditions, it is up to the public sector to spend.
Japan, for instance, has just raised its annual budget deficit to 7.1 per cent of GDP and received praise all round. For the record, Japan’s total national debt stands at 229.2 per cent of GDP and rising and the roof hasn’t fallen in. Result: Japan has some of the most splendid public roofs on the planet. In normal times, economists suggest running a budget deficit roughly in line with a country’s average trend rate of growth. That way you generate the wherewithal to fund your extra borrowing as you go along. But if the world is stuck in a deflationary spiral, the correct move is for governments to borrow heavily to kick-start demand – something facilitated by the fact that deflation results in the cost of public borrowing dropping to zero.
For some small European nations, the yield paid on bonds (which governments sell to raise money) is now negative. In other words, investors are willing to pay for the privilege of lending to Switzerland, Sweden and Denmark, bonkers as that might seem. Investors do so because they have to put their cash somewhere and it is better to keep it in a safe haven (like Swiss bonds) than risk losing the lot. So the Swiss government can now borrow cash for fifty years at a lower-than-zero rate of interest.
Earlier this year, the Danish Government actually cancelled a scheduled auction of its securities because too much foreign cash was desperate to flood into the country. From this evidence, the notion that an independent Scotland would be a fiscal basket case is risible.
For the record, I accept that a 9.5 per cent deficit is high. But it’s not an argument for being scared of independence. Quite the opposite. The Unionists – particularly the uber sort in what’s left of Scottish Labour – argue that being part of the UK provides the “insurance” and “sharing” that funds the Scottish budget deficit. The truth is that the Union has worked systematically over the decades to Scotland’s economic disadvantage, resulting in deindustrialisation, mass outward migration and the wholesale transfer of commercial decision-making to London. That’s true for the North of England, Wales and Northern Ireland, by the way.
Champions of Britishness, like Scottish Labour’s Kevin Hague, end up being apologists for a rotten capitalist system that has bled Scotland dry. Hague prattles on about the need for more “entrepreneurial spirit” being subverted and diverted by calls for independence. He worries that an indyref2 will hurt business confidence to invest. But UK firms are sitting on piles of spare cash here and now.
According to the Bank of England, over the last decade private non-financial companies in the UK have accumulated a higher proportion of cash on their balance sheets than before – more than £500 billion. As a share of GDP, corporate cash in the UK has risen from 20 per cent in 1987 to about 30 per cent today. This money is not being used for socially productive ends because it is not deemed “profitable” enough to invest. Yet we need houses, schools and hospitals galore. Hague fails to understand that capitalism is a power and class system.
Without independence, Scotland lacks the ability to break the control over investment flows exerted by big firms and international banks.
As for the argument that, in current circumstances, Scotland is being bailed out by rUK, consider this. Norway has roughly the same population as Scotland and is also having to contend with the impact of falling oil revenues. So what size of budget deficit is Norway running? Answer: none. For Norway is able to use the cushion of its Sovereign Wealth Fund, the world’s biggest, built up over the decades by saving and re-investing in equities some of the proceeds of its oil wealth. In other words, Norway used its oil bonanza to save for a rainy day. But Scotland, inside the UK, has been robbed of that opportunity.
Instead, the oil revenues were squandered by successive UK Governments on short-term tax cuts. If just 10 per cent of UK tax receipts from the North Sea had been put into an oil fund starting in 1980 and continuing until 2008, and if the nominal return had been three per cent, the value of the fund would be £24bn per annum. That’s more than enough to cover any deficit in Scotland’s budget, even allowing for any recent fall in share prices and company dividend payments. (I’m quoting figures from the respected academic Jim Gallagher, an advisor to the Better Together campaign.)
The argument that Scotland needs to cling to the Union because those nice folk in the Tory Treasury are always there to bail out we feckless Scots is palpable historical nonsense. From the discovery of North Sea oil onwards, the SNP argued vociferously for a Sovereign Oil Fund to be created, to save a proportion of the windfall tax revenues in perpetuity.
Any independent Scottish Government would have pursued this strategy. Today’s Scottish budget deficit would not exist if Scotland had been independent over the past 50 years. If anything, our alleged 9.5 per cent budget deficit was caused by the Union and the short-termism of genuinely feckless Tory and Labour governments at Westminster.
Arguing that we need to continue with this Unionist ball and chain is a recipe for national economic suicide for Scotland. That is the real lesson of GERS''
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