IMF provides ammo for another Budget giveaway

Despite official figures showing that the public finances are weakening more sharply than the Treasury predicted in November's Pre-Budget Report (which we analyse here), Gordon Brown has been handed some useful ammunition if he wants to argue for a further short-term fiscal giveaway in April's Budget.

In a paper prepared for a meeting of finance ministry officials from the G20, leading industrial and emerging market economies earlier this month, the International Monetary Fund points out that most of these countries are planning to extend their fiscal stimulus packages for longer than the UK. We are unusual in not having announced tax and public spending measures to add to spending power in the economy in 2010.

The IMF estimates that the temporary VAT cut and the rest of the PBR stimulus package will increase growth by up to 1% in 2009. But these measures will then come to an end and so have no impact on national income in 2010. In contrast, the US and Germany are planning an additional fiscal stimulus in 2010, on top of the ones they are planning for this year. Specifically, the IMF estimates that the fiscal stimulus in the US will increase growth by up to 1.2% in 2010, following a boost of up to 1.4% in 2009. And it expects the German stimulus to increase growth by up to 0.9% in 2010, on top of a 1.2% boost in 2009.

Mr Brown may well argue that this shows that the UK should put in place a further fiscal giveaway to take effect next year, because the recession looks likely to be longer than the Treasury expected last year.