OBR report: Difficult decisions ahead
So much for the numbers. What is the government going to do about them?
At first glance, you might think the OBR's report had not advanced the argument about the deficit one inch.
If, like Mr Osborne, you have long believed in more rapid deficit cuts, you will have found plenty of supporting evidence in the OBR report. But as we have seen, if you're like Alistair Darling, and you have always thought that faster cuts were risky for the economy, you might well decide the weaker growth forecasts in the OBR report had rather strengthened your case.
But it's not just a question of paying your money, and taking your choice. There is real information in the report that sheds light on the difficult decisions ahead.
Borrowing is lower than we thought - about £3bn lower by 2014-15. The key is that the OBR thinks we have less room to grow our way out of that debt than before - meaning the structural hole is that much bigger.
As a result, the IFS calculates that the permanent hole in the budget associated with the crisis and the recession has risen from 4.7% of GDP, or £69bn in today's money, to 5% of national income - or around £74bn.
It's not the monster revision that some ministers might have led you to expect. It's also about half the average forecasting error for predicting the overall deficit - let alone the "structural" hole.
But remember - these are central forecasts. Where the borrowing numbers are concerned, moving away from a deliberately cautious approach is said to have roughly offset the impact of lower growth.
Given that Mr Osborne is supposed to be aiming at a more than 50% chance of hitting his target - you might expect him to tighten policy by more than £74bn between 2011 and 2015 - meaning a tightening of more than £24bn on top of the £51bn of cuts and tax rises that Labour has already put in place.
To "over-achieve" his target of balancing the structural current deficit - by the same margin that Mr Darling planned to achieve his deficit target (in his case, over a longer time frame), the IFS say that Mr Osborne would need to tighten by an extra £34bn between now and 2015 - or £85bn in all.
Is that do-able, without raising taxes? The IFS says it is. But when you look at what it would actually involve, it looks like the technical definition of the word "do-able" , not the political one.
Since taking office Mr Osborne has repeated his desire to see £4 of spending cuts for every £1 in tax rises. With the £85bn target, that would mean £17bn in tax rises and £68bn in spending cuts. And, as it happens, Labour had already announced £18bn in tax rises. So, in theory, the tax part of the job is done. As the IFS says "that suggests that a 4:1 ratio...can be brought about without any further net increase in taxes."
But - and it is a big but - that statement doe not take account of the government's many other pledges - for example, to offset the employer piece of Labour's National Insurance rise, and raise personal tax allowances.
If they go ahead with those, they would need to find other offsetting tax rises. And the chances are that capital gains tax isn't going to be enough.
Some would also question the feasibility of cutting spending by £68bn in a single Parliament. Because other spending - on debt interest and the like - is going up, it would mean an overall cut for departments of £78bn. And, that would not be shared equally because of the departments being protected. For the unprotected departments - we're looking at cuts of £82bn by 2014-15 - meaning the average budget of these departments fall by nearly a third.
Alternatively, they could stick to the spending totals helpfully provided by the OBR - which show departmental spending falling by £39bn, or 10% over the period. That is more in the ballpark that's previously been discussed.
As I mentioned last Thursday, there's a long list of think tanks queueing up to tell the Treasury how to cut the remaining £30bn from the welfare budget. Reform joins the list tomorrow, with more than 100 pages of its suggestions for next week's Budget and the spending review.
The IFS says that "such welfare cuts are likely to seem prohibitively large". The betting is therefore that Mr Osborne will announce a mixture of all all the "tough choices" next week: faster spending cuts (including departmental and welfare spending) and, new tax rises, with all eyes on VAT.
This may well be the best guess of what he will do. But remember that he has just announced a root and branch, fundamental re-think of what government does and how it does it, including the benefit system and the newly topical issue of public sector pensions and pay (which I'll discuss properly sometime soon).
Remember, too, that Mr Osborne and his advisers have always been much taken with the overwhelming historical evidence suggesting that raising taxes to cut large deficits can damage economic growth - whereas spending cuts do not. In fact, this same evidence suggests that cuts can even help, by supporting market and business confidence.
You may not endorse these arguments. There are those who say the research doesn't apply in this era of banking crisis and deeply fragile global demand. The point is that Mr Osborne does. And so does his team.
Given all that, it's possible that Mr Osborne really means it when he says he will do all he can to avoid an increase in VAT - and that he really does not want to prejudge the results of the spending review by saying, in effect, "You know what? We're going to avoid some of that fundamental re-thinking of middle class benefits and the like, and raise VAT instead."
If he wants to avoid that, we might only get isolated VAT rises next week - perhaps extending VAT to financial services, or other areas, to raise several billion pounds. We might also get a promise - or threat - to raise VAT, or introduce a carbon tax, on a pre-established timetable, if certain stringent targets for the deficit and/or spending are not met. That's on top of some pretty eye-watering news on pay for public sector workers and probably much else besides.
Then again, he may decide that the international clamour for deficit plans - plus the OBR report yesterday - give him enough reason to kick off this era of tough choices by raising VAT across the board. But if so, it will be interesting to see him make the case.