Economics: Public finance bodes ill for 2018
Last week's preliminary report on public finance for the end of 2017 may have shown a long awaited drop in spending, but that was mainly a statistical distortion resulting from the failures of past years to bring it under control. There is very little room to expand revenues, rein in spending and pay down the country's widening public debt. In fact, there was an approximately 1.5% increase in public debt in 2017.
There is no sign of catalysts that might otherwise contribute enough to economic activity to compensate for tax shortfalls, and VAT collections are already threatened by an apparent ebbing of private consumption. In an election year we don't look for anyone to raise taxes unless forced to in order to help patch a new hole in the budget, for example, a higher VAT on gasoline to compensate for rising prices abroad; in fact, the elections could tempt current officials to spend more on subsidies and specific projects than originally budgeted.
Despite continuing fragility in public finance, most of the proposals being put forward by this year's presidential candidates would entail a substantial increase in spending but without any clue as to how to achieve that without adding to an already heavy debt burden.
Regardless of campaign promises, the next government will face rising spending commitments and the need to sustain an incipient recovery in public investment, especially on the level of infrastructure. Given such a panorama, the priority must be the skillful management of public finance at a time when there is scant room for any increase in spending.
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