Blair’s legacy, Brown’s economy?
nick cowen, 6 June 2007
Via Daniel J. Mitchell at Cato, we learn that the last seven years has seen a climb in total taxation the equivalent of ten pence in every pound:
‘What developed nation has taken the biggest steps in the wrong direction since the turn of the century? The answer is not France, Germany, or Sweden. The United Kingdom has that dubious honor. Government spending has jumped from less than 38 percent of GDP in 2000 to more than 45 percent of economic output today. That is the largest increase among OECD nations, and the United Kingdom now has a bigger burden of government than Germany.’
The report by Grant Thornton suggests the majority of the increase is down to so-called ‘fiscal drag’ where a combination of economic growth and inflation push incomes into higher tax brackets, while the Government drags its feet in moving those brackets. Disproportionately high house prices with associated stamp duty and inheritance tax have also played a significant role.
The result of the progressive nature of the current taxation system is that more and more tax is piled on as people (even averagely rich people) gain more income so that the treasury, without raising headline rates on taxation, has been able to claim a bonanza of additional incomes, not just in real terms expenditure but also relative to the rest of the economy. Although not damning in itself, this should be considered carefully in the light of where this money has meant to be spent. Taxation has shifted up several gears. The issues of health, welfare and education, by contrast, have barely changed at all!
It would be nice if taxes did cover spending, then a real squeeze on incomes would let voters see the cost. However the Bank has taken a relaxed monetary policy to lubricate this public spending binge, and we have huge PFI liabilities offsheet which will lock in public spending for the next 3 decades as the impact of Brown’s pension fund raids turn more people to reliance on State benefits.
What Britain has had is a giant blow-out party subsidised by raids on capital which people are trying to replace through property speculation fuelled by low base rates, as the tax credit bills explodes due to lower income jobs being undercut by imported labour.
On top of this the government has spent close to £100 bn on Health to produce unemployed doctors, and a huge construction budget using PFI which will lock health spending into rentals for the coming decades whilst reducing bed capacity.
The State has been hollowed out to raise extra liquidity for the traditional (at least since Edward Heath) property boom with no even mini-speculators loading up on Buy-To-Let Bubbles.
This is typical of economies like Argentina and we have just had the Long Boom of Speculative Excess – the disaster will unfold over decades
A fundamental part of economic policy is levels of tax and levels of government spending.
A case can be made for high tax/high spend policies; a case can be made for the reverse.
Not just the levels of tax are important thought.
Stealth versus transparency is also important. If tax rates are transparent then voters should have whatever they want; if taxes are raised by stealth then the government is deceiving the voters.
What are the stealth taxes?
The answer to that question reveals a lot.
Unfortunately this deceit happens too frequently,and not just on tax.
Remember how the proposed EU Constitution was rejected by the voters of 2 member countries.
So now we are not going to get a Constitution;we are going to get an amending treaty instead.