§ I now come, in the light of that factual review, to deal with the economic considerations which must influence the form of this year's Budget. I will deal first in general terms with the reasons which have called for a Budget surplus over the past few years. We have during that period been pursuing a budgetary policy which has brought us through most difficult times with a large measure of success, and I can see no present justification whatever for its abandonment; but the 62 persistent fallacies which are given vent to every year show clearly that there is still a wide measure of misunderstanding of the function of a Budget surplus.
§ Some re-statement of our general economic policy as affecting the Budget is therefore necessary, especially this year when we have recently passed through a General Election in which some people indulged in a veritable orgy of irresponsible suggestions and half-promises of increased social benefits and decreased taxation, a formula guaranteed to bring almost immediate ruin to our country. Though the technicalities of budgetary and employment policy may seem difficult and complex, the broad essentials at which we must aim are simple and clear for all to see, if they are willing to face the facts of the situation.
§ It is our unquestionable duty to avoid the twin evils of inflation and deflation. This we can only do by maintaining a balance between the amount of goods and services which the nation seeks to buy and the amount which can be produced when the labour force is, as at present, fully employed. Excessive demand produces inflation and inadequate demand results in deflation. The fiscal policy of the Government is the most important single instrument for maintaining that balance. On the one hand, Government spending swells the total of national expenditure, both directly through current purchases of goods and services and indirectly through social security payments and the like, by adding to the incomes and spending power of private individuals. On the other hand, taxation, by drawing off part of the incomes of persons and business firms, reduces their spending power, and therefore the total of private expenditure.
§ The difference between Government revenue and expenditure, that is to say whether the Budget is in surplus or deficit, gives an indication of the direction in which fiscal policy is influencing the level of total demand. The problem may alternatively be looked at from a more technical standpoint, that of investment and savings. If total demand is not to be excessive then not only must Government expenditure be covered by revenue but also the nation must be willing to hold back from spending on consumption an amount equal to that which it proposes to spend on investment.
63§ In other words, for the nation as a whole, spending on capital account must be balanced by savings on income account. If the voluntary savings of individuals and firms are insufficient, then the Government must itself make up the deficiency in the nation's savings by accumulating a Budget surplus, which in effect helps to pay for capital development, such, for instance, as that provided by loans to local authorities.
§ Clearly, since saving is the opposite of spending, to say that a Budget surplus is necessary to remedy a deficiency in saving is simply to re-state the earlier proposition that a surplus is necessary to curb excessive spending. We must all be agreed that the present danger continues to be one of excessive spending or deficient saving—[An HON. MEMBER: "By the Government."]—that is, of inflation. In these circumstances the maintenance of a Budget surplus is absolutely vital. Should anyone be tempted to argue against the need for us to have such a surplus, I would ask him to consider whether, if we remitted taxation so as to do away with the above-the-line surplus, we should get an equivalent rise in personal savings to make good the loss. Quite obviously that is not what would happen. The great bulk of the remissions would be spent on current consumption.