Blog
Q&A: What is fiscal retrenchment?
7th April 2009
Fiscal retrenchment means that a government has to introduce deflationary fiscal measures designed to reduce the amount of borrowing and debt that has been run up during the downturn and economic/financial crisis.
Ultimately fiscal retrenchment can be achieved in one of two ways
(1) Raising indirect and direct taxation
(2) Making cuts in the real level of government spending
Both are painful - tax hikes might choke off a tentative recovery and slashing government spending must hit the availability of public services - but fiscal retrenchment is the inevitable consequence of governments who have lost control of their own finances. The UK government was running sizeable budget deficits even when growth was strong - it forgot to mend the roof when the sun was shining.
Geoff Riley
Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.