IMF challenges CBI and Conservative cutters
The chief of the IMF, Dominique Strauss-Kahn, told the CBI conference on Monday that the recession isn’t over until people are back at work, that reducing the public deficit too soon would be worse than cutting it too late, and that progressive taxation was a good way to close the deficit. This runs completely counter to CBI and Conservative policies on government expenditure (and is pretty much what the TUC has been arguing for), so I don’t know how well he went down!
Some choice extracts from his speech:
It’s difficult to claim the crisis is over when unemployment is at historic highs, and getting higher still.
Right now, I think it is still too early for a general exit [from stimulus packages]. Exit should instead await a sustained recovery in private demand, as well as entrenched financial stability—a key litmus test. We recommend erring on the side of caution, as exiting too early is costlier than exiting too late.
[Governments] will eventually need to further rationalize expenditure, and—in some cases—raise taxes. But in all of this, we must strive to protect the poor and the unemployed, and pay attention to fairness—so, for example, we might prefer more progressive tax systems.
He also had some choice things to say about the need to stimulate consumer demand in countries like China (meansing higher wages there) and financial regulation:
First off, since many of the problems took place in the financial wild west beyond the regulatory frontier, the perimeter should be widened.
In addition to better rules, we need better application of rules—and that means beefing up supervision and supervisory capacity.
He was even non-committal on the issue of a financial transactions tax, which he has criticised in the recent past.