Thinking about thresholds

Targets for debt and deficit are less important than their trajectories

Chief Economic Advisor Arvind Subramanian recently warned against fetishising any particular target for the fiscal deficit, or indeed any particular level of the debt-to-gross domestic product ratio. He argued that the fiscal deficit target of 3 per cent of gross domestic product (GDP) had not emerged from any particular theory, but from the historical experience of Europe. Mr Subramanian has a good point, and one that should spark off discussions at the highest level of government. While focusing on a numerical target as a percentage of GDP may be useful as a signal to investors and to global capital, such