Twat Of The Day

From The Grauniad:

Professor Mike Devereux, director of the Oxford University Centre for Business Taxation, says the chancellor should announce a rise to a higher rate [of VAT] but delay it until 2012...

According to Devereux, an increase in VAT has another advantage over other tax rises because it is harder to avoid: "Unlike income tax and corporation tax, [a rise in VAT] should not induce individuals or corporations to move abroad ... because the tax is primarily determined by the location of the consumer."

Twat, twat, twat.

The bulk of the UK economy is entirely domestic - UK residents work for UK businesses supplying goods and services to UK consumers, and it is the damaging effects of taxes on the purely domestic economy we should worry about first. It's not much consolation to a hair-dresser or a car-repair workshop or a pub, who have to hand over 15% of their turnover in VAT* to tell them "at least this tax doesn't encourage you to move abroad".

It's not as if people will travel abroad to have their hair cut, car repaired or to enjoy a swift pint, so whether the hairdresser, car mechanic or pub has to hand over VAT or income tax or corporation tax is completely irrelevant. Further, if these people knew that other countries had lower rates of VAT or none whatsoever, wouldn't it encourage them to relocate there? So it's all well and good him saying "should", that's like saying "people shouldn't murder people", yeah, I know they "shouldn't" but unfortunately they do, whether you like it or not.

The mercantilists say "Imports bad, exports good", and therefore that imports should be taxed more heavily than domestic production - but this is not a justification for VAT (which clobbers domestic and foreign producers alike), this is a justification for import duties.

As a staunch opponent of protectionism, I see no reason for having import duties either (which are historically very low, to be fair), so this makes VAT a doubly bad tax - it is a very crude tax that is supposed to (but fails to) discourage imports, which are A Good Thing in and of themselves anyway. We export the surplus of whatever we can produce cheaply but don't need, and import stuff which others can produce more cheaply than we can. What's not to like?

If we are to argue in favour of taxes on things that cannot be shifted abroad and which do not "induce individuals or corporations to relocate abroad", then how about replacing as many taxes as possible with a tax on ..?

* No doubt somebody is dying to say "But they can reclaim their input tax!" but that is bollocks as well. The business hands over 15% of his turnover in VAT, full stop. Some goes directly to the taxman, and some is paid to its own supplier, who in turn hands it over to the taxman (your input VAT is somebody else's output VAT). Sure, there is netting off, but the total VAT handed over by all the businesses in the chain from raw materials to retailer is pretty much equal to 15% of the gross turnover of that chain, i.e. the end-selling-price to the consumer.