Table 2: Government Expenditure Ratios
(per cent to GDP)
Total
Public
Current
Capital
Other
Sector
Public
ACTUALS:
87/88 -90/91
16.4
10.4
3.6
2.4
MRF:
91/92 -94/95
19.7
11.8
5.0
2.9
Longer term trends of public expenditure
17. With a longer term view of public expenditure trends it is difficult to conclude that there has been a substantial trend
increase in public expenditure in relation to GDP other than the
potential increase in baseline current and other public expenditure in the current MRF (data for 1978/89 onwards are shown in the chart 1, Appendix A).
18.
Increases in the ratio of expenditure to GDP are clearly seen in years where GDP growth slowed markedly (81/82, 82/83, 89/90 and 90/91). These swings are principally a result of the dependence upon direct taxes which account for 60 per cent of current revenue on average and which are more sensitive to GDP changes than expenditure commitments. Corportation tax is the strongest pro-cyclical tax source.
19. It therefore seems likely that during a prolonged period of slow growth
growth the public expenditure share of GDP will rise significantly. The experience of other developed countries suggests that rapid rises in the public expenditure share are difficult to fully reverse.
reverse. Appendix B shows that the most
substantial sustained increases
increases in the UK public expenditure share occurred as a result of what were perceived to be temporary increases in expenditure during the first and second world wars.
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