Primed for a Budget Fight

Approaching elections are inciting calls for more government spending

- Cristina Lindblad

When economies stall, as they’re threatening to do almost everywhere, politicians typically inject some fiscal support to turn things around. This time it’s going to be complicated.

The pandemic has left governments in the developed world with bigger deficits and debts. But there’s a more pressing problem: high inflation. Covid spending helped cause it, many economists reckon. And with supply chains still snarled, the standard recession-fighting measure of putting more cash into consumers’ pockets risks adding to the already intense price pressures.

That’s the backdrop to the budget fights heating up in many countries, which have already claimed one high-profile casualty in Italy. Mario Draghi’s government collapsed on July 21 after his coalition allies withdrew their support, saying a proposed aid package for households and businesses struggling with record energy bills wasn’t big enough.

In the UK, the contest to succeed Boris Johnson as prime minister is dominated by an argument over fiscal policy, with one candidate promising immediate tax cuts and the other offering a small targeted relief and warning that anything larger would just undermine the Bank of England’s mission to tame inflation.