LONDON (Reuters) - British finance minister George Osborne said on Wednesday he would miss his short-term budget deficit targets but could afford tax cuts for most home-buyers, offering some relief to voters from his austerity push before elections.
Osborne stuck to his plan for further spending cuts to put Britain’s budget back in the black before the end of the decade, hoping that his purge of the public finances will return him and Prime Minister David Cameron to power in May.
He also announced a fresh crackdown on corporate tax avoidance, saying multinationals which artificially move profits abroad would be hit with a 25 percent tax and banks would be able to claim fewer tax breaks for losses dating back to the financial crisis. Bank shares fell.
In this, Osborne was taking aim at political ground held by the opposition Labour party, which claims the Conservative-led coalition favours the rich.
Britain finally began to recover from the financial crisis in mid-2013. But growth has not yet brought big pay rises for workers or higher income tax receipts for the government.
Osborne said Britain’s deficit would be bigger than previously expected in the current financial year and in 2015/16 before improving after that and going into surplus in 2018/19.
“Out of the red and into the black for the first time in a generation — a country that inspires confidence around the world because it seeks to live within its means,” he said as he gave parliament an update on the economy and public finances.
Britain’s independent budget office underscored the size of the squeeze still ahead. It said Osborne’s plans would take public spending as a share of the economy to its lowest level in 80 years.
In the current year, the budget shortfall looked set to fall by only half of the decrease that was forecast in March, to the equivalent of 5.0 percent of gross domestic product, or about half its level of 2010, when Cameron took power.
The Office for Budget Responsibility said “meaningful” wage growth above inflation would resume in 2015 but would not return to pre-crisis levels in the next five years, contributing to much lower growth in tax revenues. That would be offset by lower debt costs, it said.
In another sign of the challenge for whoever wins next year’s election, overall economic growth is expected to slow from 3 percent this year — its fastest pace in more than a decade — to 2.4 percent in 2015 and 2.2 percent in 2016, the OBR said.
Aware of fatigue among voters after nearly five years of austerity, Osborne did come up with some rewards.
He overhauled taxes on property purchases, saying 98 percent of home-buyers who have to pay so-called stamp duty will see their tax bill reduced. Buyers of houses worth more than 937,000 pounds will pay more.
The move may help diminish the appeal of Labour’s plan to charge a new tax on homes worth more than 2 million pounds. In 2013, Osborne gave a boost to the British housing market and the broader economy with a state mortgage-guarantee scheme.
Osborne also scrapped a tax on air travel for children, a move that boosted shares in airlines such as EasyJet (EZJ.L), and said people could now earn more before they start to pay income tax and before they have to pay its highest rate.
For companies, he promised a review of taxes levied on property values, a long-standing complaint of businesses.
Before Wednesday’s statement, the government announced more funding for Britain’s health service and details of a new road-building programme.
Cameron has previously said he wanted to reward voters with income tax cuts, once the public finances were stronger.
The Conservatives narrowly lag the opposition Labour party in most opinion polls. But they score more highly on economic policy, and Osborne again warned voters that the recovery was only safe in his hands.
Labour has attacked Osborne for missing his original promise to effectively wipe out the budget deficit by 2015. They also argue that the economic recovery has been unequal.
“People are worse off and the fact is he has failed to balance the books in this parliament,” Labour’s would-be finance minister Ed Balls said in reply to Osborne’s speech.
Additional reporting by the UK bureau Editing by Jeremy Gaunt, Larry King