Do spending cuts harm governments’ re-election prospects?
Should David Cameron worry that restraining public spending will hurt his chances of being re-elected? Recent political history will reassure him.
In the 1980s and 1990s countries such as the UK, Canada, New Zealand, Sweden, and Ireland had governments that exercised fiscal restraint. In some cases they actually cut spending in real terms. Margaret Thatcher, Paul Martin, Sir Roger Douglas and their counterparts were faced with protests and strikes. They were also opposed by much of the media and academia. Just like we’ve recently seen in the papers, many commentators believed fiscal tightening would undermine economic recovery. Indeed, the policies of Mrs Thatcher and her chancellor Geoffrey Howe were heavily criticised by 364 economists. The leaders were all advised that they would lose the next election.
In each case the critics were proved wrong. The economy quickly improved and the ruling party was re-elected to government. Margaret Thatcher was Prime Minister from 1979 to 1990; the Canadian Liberal Party only left power in 2006. In most instances over the last three decades where decisive action has been taken to tackle budget deficits, it seems the party in power has been re-elected.