A balanced-budget rule


An American colleague sent me a recent speech by Governor Christie, New Jersey's new, conservative governor.

"By the time we got here," he say, "of the approximately $29 billion budget there was only $14 billion left. Of the $14 billion, $8 billion could not be touched because of contracts with public worker unions, because of bond covenants, and because of commitments we made accepting stimulus money. So we had to find a way to save $2.3 billion in a $6 billion pool of money. When I went into the treasurer's off in the first two weeks of my term, there was no happy meetings. They presented me with 378 possible freezes and lapses to be able to balance the budget. I accepted 375 of them."

Tough measures indeed, but necessary. Because nearly all US states have a balanced-budget provision. They have to balance their books, and there is little scope for fudging. That is why, just this week, Virginia – with a falling population and hard-hit by the credit crunch – has voted for spending cuts that would shrink spending to 2006 levels. Virginia legislators added plenty of spending when times were good: now they have to scale back again, and are trying to do so without cutting essential services.

A balanced-budget rule is something UK politicians should aspire to as well. All too often, government expenditure rises in the good times, but when there is a downturn we are told that it cannot be cut without damaging public services. Phooey. Governments just need to do what every family and business has been doing – identify the priorities, keep on with them, but cut out some of the inessentials. Spending has risen 50% under this government – but are our public services now 50% better? Hardly. We could lose all that spending without noticing the difference.

The incoming government will no doubt try to buy itself some time with public-sector wage and budget freezes. But that is no long-term solution. We need to re-think and prioritise what government actually does. And adopt a balanced-budget rule, so that the government sector's coat is cut according to the wealth-creating sector's cloth.