In June 2010, the Office for Budget Responsibility (OBR) judged that the new coalition government was on track to meet its “fiscal mandate”, defined as a balanced cyclically-adjusted current budget in five years’ time, i.e. in 2015-16. This forecast was wrong: the OBR now projects a deficit of 2.2% of GDP.

In its latest Economic and fiscal outlook, the OBR again claims that the mandate will be met, with a forecast cyclically-adjusted current surplus of 2.3% in five years’ time, i.e. in 2019-20. This projection is also likely to be undershot significantly.

The June 2010 forecast was wrong mainly because the OBR was too optimistic about the pace of the economic recovery and its impact on tax receipts. The December 2014 forecast is likely to be wrong because the OBR has been forced to factor in the government’s fantasy spending plans.

The chart tells the story. The government’s plans imply that current spending as a share of GDP will fall by 5.0 percentage points (pp) in the five years from 2014-15 to 2019-20, to its lowest level since 1972-73. This is much larger than the 3.1 pp reduction over the last five years and will supposedly be achieved despite continued ring-fencing of health, education and overseas aid, which account for about one-quarter of spending, and a largely uncontrollable welfare budget.

It won’t happen. The next government, of whatever complexion, will struggle to repeat the 3.1 pp cut in the spending share in the current parliament. This, in turn, suggests that the cyclically-adjusted current budget will, at best, be roughly balanced in 2019-20.

The obvious conclusion is that a new government will attempt to raise the tax share of GDP to allow for a more realistic spending profile. The economy, however, is not under-taxed, as the chart shows: the share of non-oil taxes in GDP is equal to its average since 1980. Tax-raising measures may yield much less than expected, as they have over the past five years.