Monday 21 May 2012
2020tax is a politically naive failure
I know you can't do everything at once, but this high profile launch today is destined to be an abject failure. Of course many of the arguments are very sensible indeed. Going for a flat 30% rate of tax and getting rid of the absurd loopholes we have (such as some owners paying 10% of income as tax through using dividends and some contractors earning nearly 50% more than the full time people they sit next to doing the same job!) is clearly an idea that we, as a Country should address.
The madness of the bureaucratic structure of National Insurance and Income tax no doubt employs a few people at HMRC - but I doubt they meet any criteria on being gainfully employed.
So why do I decry it as inept. Well, much of the document seems to be a theoretical argument for a smaller state - one which I would agree with on a level. However, to reduce public spending to 33% of tax income over the next 7 years would be an almighty squeeze. Especially as it is at over 50% now - its equivalent to a 40% cut in Spending.
Plus of course, 14% and rising of this spending is just the interest on our accrued debt - so REAL spending would have to fall to something like 23% of GDP - so in real terms a 50% cut in Government spending (its £200 billion in today's money, net of debt interest).
How realistic is that? More importantly - where are the votes in it? Scrap schools and Hospitals has never been a vote winning strategy. However, with this budgeting you would literally have to do more. Of course a huge chunk - nearly 20% of Government spending is on Pensions. We have seen through all the strikes recently that even relatively minor changes here will not be accepted by public sector unions without a fight. How these commitments could be reduced by 50% without serious civil disturbance is beyond me.
I have much sympathy with the idea that the modern welfare state as we have constructed it in the UK and much of Europe is not sustainable financially. We can see from the huge deficits, even with all out North Sea Oil revenues over the past 25 years, that Government spending is too much and will have to come down.
Very few people are going to vote for that, just as there are by definition no votes in tax cuts for other people - as the Government has just cruelly learned.
This report misses that rather important fact. As such, it is going to get portrayed across most media as a tax cut for the rich, which is currently the prevailing zeitgeist. All the good bits about reforming the tax system in a positive way will be lost in haze of scrapping inheritance tax and other taxes seen as only benefiting the rich. Worse in an ageing society this precise form of taxation would be very bad for, um, pensioners - you the ones who actually vote in election?
A lot of hard work has gone it to this work for it to be a one day wonder, but I fear its political naivety will ensure that is its place in history.