A new way to explain how much they spend
SOME readers may be familiar with recent attempts to make US government spending plans easier to grasp by converting them to a representative family budget. Having recently returned from a weekend teaching in Croatia, I want to use it as a European example, hopefully shorn of the partisan emotions that can arise when discussing the UK’s finances.
Let’s take a typical Croat called Nikica. Assume that Nikica earns 123,051 kuna (kn), roughly £13,508, a year. If Nikica is budgeting like the Croatian government, this year he will have spent 133,708kn, forcing him to take on 10,657kn of new debt, in addition to his outstanding debt of 161,563kn. Prime Minister Zoran Milanovic and his minister of finance Slavko Linic have a plan to halve Croatia’s budget deficit – if Nikica did that, he’d have cut his spending by just 4,600kn.
These analogies are important because they democratise taxation – they help the public understand what’s being done in their name. Croatia has a budget calculator online, the Proracunski kalkulator created by Marko Rakar (http://proracunskikalkulator.com). It is an elegant and well-designed interface for the public to explore solutions to the budget crisis, and I wish there were something comparable for the UK.
Rakar’s goal is to increase economic literacy by getting people to realise that tax revenues are their money, and grasp the impact of rival spending plans. Every figure is converted into a representative income so that people can see how much tax they pay and where it is spent. It generates awareness about the size of the budget deficit, and the difficulty of reducing it. And as people understand more about public finance, demand for fiscal conservatism increases.
This is a popular tool in Croatia, with over 100,000 users in the build up to the last election (about 5-10 per cent of the total number of internet users in the entire country). It demonstrates how the internet can be harnessed to strike the popular consciousness and make economics relevant to people’s lives.
In 2005, I spent time in Romania conducting interviews about public finance reforms. I remember an economic adviser to the President boasting that his boss was popular because “he treated the public’s money as if it were his own”. “You mean as carefully as if it were his own?” I enquired. “Of course!”
Anthony J. Evans is associate professor of economics at London’s ESCP Europe Business School.
www.anthonyjevans.com