Fiscal scoundrels

Willem Buiter discusses an UK government plan for a "quasi-fiscal energy subsidy" to poorer energy consumers in an article on his FT.com blog. But Buiter opens his piece, Quasi-fiscal scoundrels 3: Energy tariffs in the UK, with a more general point,

Gutless politicians prefer paying subsidies to favoured special interest groups by tinkering with the price mechanism to doing it through explicit budgetary transfers. The reasons are obvious. Explicit budgetary transfers can be observed and measured objectively. The transfer of resources is transparent. Explicit budgetary transfer payments have to be financed, either by increases in current taxes or current cuts in public spending, or by government borrowing, that is, by increases in future taxes or cuts in future public spending. Explicit budgetary transfers are on-budget. They can cramp the government’s room for fiscal maneuver through budget rules (the UK government’s golden rule, the budget deficit norms of the EU’s Stability and Growth Pact etc.). Explicit budgetary transfers imply a measure of accountability. For all these reasons, governments prefer to engage in quasi-fiscal operations that are off-budget and off-balance sheet, and that achieve the government’s distributional objectives mainly by mucking about with prices, rules and regulations under the control of the government.

Use of measures such as "tinkering with the price mechanism" rather than the use of "explicit budgetary transfers" allows politicians to create an information asymmetry between themselves and the voters. Voters get the see the "good bits" of a policy while remaining ignorant about the true costs involved with that policy. Deliberately induced voter ignorance helps politicians avoid the possibility of the costs of a policy resulting in them being punished at the next election.