Fiscal inefficiency

24 Mar 2025 2 min read

Daily update

  • Media reports suggest that the rather haphazard attempts to restructure the US government could cost half a trillion dollars in lost tax revenues this year. Investors have not priced the restructuring as an efficiency improvement (more efficient government would boost both bonds and equities). While record wealth levels in the US suggest that the high fiscal deficit can be funded, losing tax revenue on this scale will raise concerns about sustainability at some point.
  • Tariffs do raise tax revenue from US consumers and companies, but also threaten weaker growth (undermining other revenue sources). Expectations ahead of next week’s big tax increases have focused on more targeted tariffs. Targeted tariffs may focus the tax burden on specific groups in US society.
  • The Turkish lira remains weak after Istanbul’s mayor was imprisoned on Sunday. Large protests have taken place in response to the arrest. The currency markets are likely to be the clearest signal of investors’ reaction to the political situation.
  • There are assorted business sentiment polls due—in a general climate of falling response rates and rising political polarization, the value of such surveys is not clear. Bank of England Governor Bailey speaks, but is unlikely to add market moving comment so soon after the post-rate decision press briefings.
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