Budgets and Austerity

The Italian coalition government (interesting in its own right, consisting as it does as a teaming up of the far left 5 Star Movement and the far right Liga) has decided to increase government spending and decrease taxes.  This has been projected to produce a 2.4% budget deficit.  For a government already badly in debt, this deficit isn’t good.

Cutting taxes has been decried by others as being the cause of such deficits and debts.  Spending cuts cannot be allowed, say the same folks, because that would be an austere measure.

They’re wrong.

Cutting taxes leaves more money in the hands of the citizenry, the folks best positioned and best suited to make decisions concerning how their money should be used.

Cutting spending—a necessary measure to stay within the taxes collected—far from being an austerity measure, would enable Italy’s economy to burgeon. Getting the government out of competition with the citizens and businesses of the Italian economy for that economy’s resources will reduce price pressure, and it will leave those resources more available to the private actors, who will use those resources more efficiently than any government can achieve.

Italy’s move to cut taxes and increase spending is a half measure.  Spending needs to be cut to fit within the revenue the taxes will produce. Make no mistake on a related matter, too: the burgeoning economy will produce a net increase in revenue to the Italian government.

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