Thursday 19 June 2008

Discussion of future tax policy


I read this story on Iain Dale's blog this morning and the original article in the Telegraph.

The only conclusion I can reach is that both men, fine members of the conservative party, both understand little about economics and government policy.

Firstly, as I have noted before, the government finances are in such a poor state that more funding is needed for debt and PFI servicing alone. The only way round this is a big cut to services; not some fantasy about not growing government spending over the medium term. the economic situation faced today is fundamentally different from the past few years.

As such the only way to deliver tax cuts is through spending cuts; many areas are out of bounds like defence spending, PFI contracts are signed for 20 years and government pensions are also a big chunk. Transport surely requires investment.

This really leaves social services, tax credits, the Home Office as was and the NHS. There are some big projects here that could be canned - ID cards, NHS IT, CSA, tax credits system.

This is what needs to be discussed, openly and loudly. Also the quango culture needs to be tackled.

All this is honest though and I doubt the Tories yet have the courage, even riding high in the opinion polls. But mass jobs cuts would not be the medicine the country needs heading into a recession - whatever the ideological merits. Spending cuts would have to be focused firmly on waste not generic targets for reductions.

In addition, there is discussion again about raising the tax threshold and removing people from paying tax etc. All this misses the point that in a recession we need to encourage spending, the most regressive taxes are consumption taxes so any cuts should be on VAT - including fuel.

Tax policy as being discussed by the tow gentlemen is a variation on Gordon Brown's tinkering with tax to achieve social outcomes.

Let's focus tax changes bringing about economic outcomes a task for which they are far better suited.

19 comments:

RobW said...

I believe the Labour government have well and truly f##ked us.

Old BE said...

There are lots of savings to be had I reckon. Also, if GB wants the international oil price to come down he could easily slash public-sector energy use which could have quite a big impact given that the public sector is such a large chunk of the economy.

CityUnslicker said...

Tbrrob - quite.

BE - Our impact on global oil demand is as marginal as our impact on global warming; best not to beat ourselves up about things we can't influence.

Old BE said...

Well I want the government to stop frittering my money away as well, so there would be two benefits :-)

Anonymous said...

I'm not sure how much control the UK has over cutting its VAT rate. From the bottom of this article http://www.gmanews.tv/story/98716/France-asks-EU-nations-to-slash-VAT-on-fuel , it looks like we have to get EU approval.

"All 27 EU nations must unanimously agree any changes to VAT which they can charge at any rate between 15 percent and 25 percent."

J

CityUnslicker said...

Anon - You quite right, we have little lee way at the moment. The EU loves regressive taxes too. I have logical solutions to that as well....

Nick Drew said...

You forgot to mention the Olympics ! I am sharpening the axe as I type.

Bill Quango MP said...

"All 27 EU nations must unanimously agree ...."

I believe we have discovered recently that they don't have to agree.
Lisbon Treaty and all that.

lilith said...

"In addition, there is discussion again about raising the tax threshold and removing people from paying tax etc"

It makes no sense to me to tax people and then pay other people to give the tax back (tax credit)and pay yet more people to bill the poor taxpayer for over payment of tax credit etc... There will be job losses in the private sector, there already are, no body would notice if we dissolved the regional assemblys...

Guthrum said...

Taxation is at least something Governments can control- not market demand and supply- but turkeys don't vote for Christmas

CityUnslicker said...

Bill - let us hope. They are all having a nice dinner in Brussels to sort it out thought tonight.

Humble Pie for the Irish PM sat in the corner on his own no doubt.

CityUnslicker said...

Lilith - Quite, there is a huge saving that can be made here with simplification of the tax system. Where is George Osborne's policy on this?

CityUnslicker said...

Guthrum - The Tories always end up clearing up the Labour mess, this time the Labour party have had 2 terms to inflict the damage which was hidden by the credit boom.

Ouch time now.

Mark Wadsworth said...

CU, that was a brave full-frontal assault - I agree completely that VAT is the worst tax - but apart from that there is a colossal amount of 'waste' in the system, all this stuff that the TPA bash out is perfectly well researched, and it's all true!

There's no need to sack nurses or coppers or cut overall welfare spending - just sack a million-and-a-bit quangista (for that is how many there are), problem solved!

Elby the Beserk said...

Why "outcomes" all the time. "Results" is what normal people used to say - enough of this New Stasi newspeak, thank you.

Letters From A Tory said...

Interesting take. I think the quango culture has got to be target number one, following by any other frivellous government spending. Going after those who avoid paying their taxes and closing tax loopholes might pick up a few quid as well.

Anonymous said...

Well growing national debt is clearly a symptom of national expenditure being too high relative to government income. Strictly, such things should be prevented by a carefully drafted consitution protected by a "beyond bribery" monarch. However, we don't have such a luxury, only corrupt government. So is government expediture too high, or can the government just raise taxes to pay off the debt? Well, we also have a serious trade deficit, which implies we have too few people working in the wealth creating part of the economy, and too many living off growing debt. Thus we can see that raising taxes is not an option. We need to create more wealth to re-balance the economy. This means moving people off public expenditure and into the private sector. The only way to do that is to reduce public spending. To stimulate the private sector, the reduced public spending will permit tax cuts which will allow increased consumer spending in time, greater investment in the private sector leading to greater international competitiveness. Reduced tax take will also encourage the return of inward investment to an economy that will provide a better environment for private business. The national debt itself will need to be paid off over time by a two pronged approach - allowing the debt to be inflated away and by selling off of unwanted assets like the BBC.

The concept of giving away the tax breaks to the lowest income class is a good one. We already have a problem with people lackijg the incentive to come off disability benefit and unemployment benefit. Cutting these benefits and using the savings to stimulate an incentive to work by reducing starting tax would not only be a good idea but would very likely break the Labour Party.

Of course, none of these fixes can be achieved with Labour in power, they are "committed to an escalating failed course of action" as typified by their insistence that the national debt should grow at an even faster rate in 2008/2009. We need to get shot of them first. People will certainly be fully ready for change by 2010.

CityUnslicker said...

MW - Yes there are savings to be made; my challenge to the Tories is to say this in public and stop being mealy mouthed about out of some misconstrued idea of political expediency.

Elsby - welcome, sorry, I am a city based management consultant - it is hard to check out of this mode!

lft - Chasing missing tax income is a non-strater. There is a huge impact of diminishing returns here. The HMRC is full of public sector workers who want more bodies to find the cash - that extra cash eats the taxes. Chasing lost money on social benefits is just as crazy and alienates the poorest in society too.

Ryan - Glad to see you back. I simply agree with every word you write. The government has lost control of the public finances entirely.

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