TOKYO — Countries around the world have expanded fiscal expenditure due to the coronavirus pandemic, causing public debt to balloon to unprecedented levels. The debt-to-gross domestic product ratio of advanced economies in 2021 will reach a record high of 125%.
To rebalance budgets, investment to accelerate economic growth will be more important than raising taxes or imposing austerity measures. This is because, in the long term, GDP growth influences tax income.
On Oct. 13, the Institute for Fiscal Studies, a U.K. think tank, announced that to keep debt constant at 100% of national income, the British government would need a fiscal tightening of more than 40 billion pounds ($52 billion) in fiscal 2024.
But the U.K. Treasury is cautious about taking such steps. This year, the annual tax adjustments which usually take place in the fall were postponed, meaning there were no tax rises on items like fuel and assets. U.K. finance chief Rishi Sunak said, “The priority right now is on jobs.”
So how can a country balance its budget in the mid to long term and at the same time save the jobs of millions of people affected by the pandemic?