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As the U.S. Embraces Stimulus Checks, Others Might Take a Different Path


Covid-19 seems to have taught Washington that fiscal policy is best delivered big and directly into people’s bank accounts. Elsewhere, the end of austerity economics is looking less bold.

On Wednesday, British Treasury chief Rishi Sunak delivered an annual budget that provided long-awaited clues about what will happen to government spending once economies rebound. Will fiscal activism stay in place or will the pre-2020 focus on bringing down deficits return? Mr. Sunak chose to walk a line between the two.

Investors positioned for higher growth and higher inflation should pay attention: Other countries faced with sudden jumps in public-sector debt might take a page from the U.K. book. The approach seems unlikely to deliver the same tailwind to economic growth as in the U.S.

Mr. Sunak has personified the U.K. Conservative Party’s shift away from its old fiscal mantras by taking government net borrowing to its highest proportion of output since World War II. Yet he hasn’t embraced new views now popular in the U.S., which see the impact of government deficits on inflation as the true limit on spending. On Wednesday, he warned that bond vigilantes could push up borrowing costs at any point.

To prevent this, he plans to raise corporate taxes and freeze tax-free allowances on personal income. It would be unfair to label this a return to austerity, though: The tax increases come into effect in 2023, meaning they might never happen. Meanwhile, the Office for Budget Responsibility, Britain’s independent fiscal watchdog, forecasts that deficit-financed capital expenditure will continue into the foreseeable future, even as officials plan to bring current spending and receipts into balance by around 2025.

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