Frequently Asked Questions - What deficit will an independent Scotland inherit and how would this be managed?
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Scotland’s deficit is forecast to fall to between 1.6 per cent and 2.4 per cent of GDP in 2016/17 with a historic share of UK debt and to be between 2.5 per cent and 3.2 per cent of GDP if we take on a population share of UK public sector debt. The Office of Budget Responsibility forecasts that the UK will run a deficit of 3.4 per cent of GDP in the same year. The IMF estimates that the average deficit across the G7 economies will be 3.2 per cent in 2016. Based on this approach, the net fiscal balance for an independent Scotland in 2016/17 is therefore forecast to be better than for the UK as a whole.
When assessing a country’s finances an important figure to consider is the current budget balance. This measures the degree to which current taxpayers meet the cost of paying for the public services they consume today and includes a contribution to debt interest payments. If a country is running near to a current budget balance or surplus it may still have to borrow to fund capital expenditure. However, such borrowing will be for long term investment which can be expected to increase the economy’s productive capacity in future years. Such borrowing can therefore be part of a sustainable approach to managing public finances.
Assuming a share of debt interest payments based upon Scotland’s historic contribution to the UK public finances, Scotland’s Current Budget Balance is estimated to be between 0.1 per cent (i.e. a surplus) and -0.7 per cent of GDP in 2016/17. Assuming a population share of debt interest payments, Scotland’s current budget balance in 2016/17 is projected to be between -0.8 per cent and -1.5 per cent of GDP. This compares to a forecast for the UK as a whole of -1.9 per cent.
Source: Scotland's Future, Scottish Government, November 2013.