Fiscal, monetary & welfare policy

We cannot separate tax and welfare policy. It makes no difference to someone within the range of welfare support whether the government takes 30 pence in tax for every extra pound that they earn, or takes 20 pence in tax and withdraws 10 pence of benefits. The two have the same effect on his effective income and on his incentives. Tax and welfare policy must be coordinated to ensure that their combined effect is neither distortionary nor disincentivizing.

We cannot separate fiscal and monetary policy. Governments determine the targets that supposedly-independent central-banks must consider in managing the money supply. A government unwilling or unable to make the necessary spending cuts or tax increases to reduce a substantial deficit will need either to borrow or print money.

Money taken in to the government (via taxes or borrowing), money allowed to be created by the government, and money expended by the government must be balanced in two ways (a) to minimize deficits (and where possible reduce existing debts), and (b) to minimize disincentives to socially-positive behaviour (whether that is to work, to take responsibility for family and others, to avoid crime, or whatever). This balance is most visible in the budget, which is where we must start.

Discuss ideas about fiscal, monetary & welfare policy on the forum.