Fiscal control is an economic policy where a government avoids deficit spending by not spending more than it can raise through taxes or asset sales, to avoid borrowing and future interest payments. It is a political and economic debate, with supporters of deficit spending arguing it allows for investment in capital spending, while supporters of fiscal control argue it is irresponsible. Evaluating such policies can be difficult due to varying spending and revenue during business cycles. Some measures used to achieve the objective can be considered political, with opponents labeling it fiscal conservatism.
Fiscal control is an economic policy in which a government intentionally avoids deficit spending. To exercise fiscal control, a government does not spend more than it can raise in the same period through taxes or through the sale of assets. The goal is to avoid the need for borrowing and therefore future interest payments. Political opponents may consider it an unfairly neutral-sounding term, preferring to describe some versions of the policy as fiscal conservatism.
Intentionally adopting a policy of fiscal control is effectively taking a position in an important political and economic debate about whether governments should borrow to finance public spending. It is possible for a government to spend more than it takes in, borrowing money through measures such as issuing bonds. Supporters of this type of borrowing, known as deficit spending, argue that the cost of borrowing is outweighed by the benefits of being able to invest in capital spending, like building new schools, compared to a business loan to finance expansion. Supporters of deficit control argue that such spending is irresponsible and puts public finances under even greater pressure in the future, particularly given interest payments on loans.
Evaluating such policies can be difficult in economic terms. This is because some elements of government spending and revenue vary with business cycles, without a change in economic policy. The main examples are taxes and social spending. This means that during a recession, a government that pursues a policy of economic control can still run a budget deficit. To allow for a fairer comparison, some economists try to adjust measures of spending and revenue to account for business cycles.
It can also be difficult to assess whether a policy qualifies as deficit control when a country already has large debt or a running surplus. A government with a general principle for fiscal control can spend more than it receives during a period, financing the excess from an existing surplus. For this reason, there may be a difference between a government’s long-term economic policies and principles and the pattern of spending in a particular year.
Some of the measures used to achieve the economic objective can be considered political elements. For example, it could be argued that having high taxes that equate to a high level of spending is exercising fiscal control, since the balance remains neutral. However, some advocates of fiscal control can always pursue a policy of emphasizing spending cuts to reduce government participation in markets. Opponents of such a policy may call this politically motivated and label it fiscal conservatism.
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