Yesterday's newspapers were full of articles saying "Rejoice! The Tories aren't going to push through Labour's planned Council Tax revaluations and rebanding, which would have meant that some households pay up to £320 more a year!"
All propaganda, of course...
1. There's no evidence to say that Labour would have done this (they were as Home-Owner-Ist as the current lot) and even if they were planning it, there's no evidence to say they wouldn't have chickened out, yet again. And what about all the people who might have ended up paying less in Council Tax? Not even the most rabid Tory Home-Owner-Ist newspaper has claimed that Labour wanted to increase overall Council Tax revenues of currently about £23 billion a year.
2. In the same breath, these newspapers don't mention that the Tories want to increase VAT to 20%, which they claim will increase VAT receipts by £13 billion a year. As a matter of fact, it's more likely to increase unemployment by a quarter of a million and raise very little, but never mind that.
3. Neither do any of these newpapers mention the fact that the Tories have every intention of pressing ahead with Labour's planned National Insurance increases. Direct.Gov rather coyly states that "The government has announced that the employee, employer and self-employed rates of National Insurance contributions (NICs) will increase by 0.5 per cent from April 2011 in addition to the 0.5 per cent increase announced [three years in advance] in 2008."
4. What they are actually saying is that Employee's and Employer's NIC will each go up by 1%, in other words the total tax burden on wages will go up by 2%. Which on a static basis would increase National Insurance revenues by about £10 billion a year (or else it will put another couple of hundred thousand people out of work and raise nothing, all depending on elasticity of supply and demand).
5. To summarise, the Tories are going to try and increase revenues from the main taxes on jobs - VAT and National Insurance - by a princely £23 billion a year, i.e. the increase in these taxes is pretty much the same as the entire revenues from Council Tax. Another way of increasing tax revenues by £23 billion a year, with far less damaging effects on the economy, and in a far more honest fashion, would simply have been to double Council Tax. Not much chance of that happening though.
Meh
1 hour ago
9 comments:
I suppose that another alternative might have been to cut government, but nobody ever does that. I wonder how long it will take the market to figure things out and push up interest rates.
Unbelievably I still meet people who save in sterling, it's like they just can't see the big trends, falling house prices, reduced credit, falling oil revenues, aging population, more taxes.... It can only end one way, shrinking economy, falling pound, increased poverty.
Anon, the Tories are planning to increase government spending year on year, apparently.
They are just shifting it from spending/wasting it on public sector workers (who are highly unionised) to spending/wasting it on their mates in the private sector (so that they all get nice directorships in a few years' time).
As to the rest of what you said, agreed, but most other countries are going the same way.
The VAT thing is a just aligning our taxation with other states in the EU cartel.
Mark just for completeness, have your calculations in point 4 taken the threshold rises into account?
AC1, too true. As a tax advisor and EU watcher, it seems pretty conclusive to me, but like all EU things, they haven't put it in writing yet.
F, yes of course. NIC receipts 2009-10 £98.4 billion, marginal rate for most employees = 11% + 12.8% = 23.8%, increase that to 25.8% = £98.4 x 25.8/23.8 = £106.7 billion. £106.7 billion - £98.4 billion = £8.3 billion extra = 'about £10 billion'.
'About' is a technical term meaning 'rounded to the nearest significant figure' because I couldn't be bothered to look it up or check.
I'm always interested in your VAT predictions. I remember reading with interest your convincing analysis on what would happen to VAT receipts (I think you concluded: very little) when the VAT rate went up.
I have been meaning to ask for a while though: do you know if that same analysis produces similar results when applied to the recent VAT reduction and subsequent rise? I presume the same logic means that there should have been no reduction in receipts when VAT went to 15% and no increase when it returned to 17.5%? Am I (and thence are you) correct in that surmise?
OP, no that's not what I said. What I said was:
1. More than half the VAT increase/reduction is borne by/benefits the supplier. The rest is borne by consumer or disappears as 'lost output' (i.e. is borne by people out of work who otherwise would be in work).
2. Although headline total VAT receipts go up or down as expected (although by less than expected from a simple calculation old reveneues x new rate/old rate), the problem is that the government ignores the other taxes/costs i.e. corporation tax goes down by 28% x VAT increase; 1% extra VAT = 100,000 jobs lost = £1 billion extra welfare spending etc.
3. The 'good' news is, next year VAT goes up to 20%, so we will have three consecutive years where VAT was 15%, 17.5% and 20%, so we can look at e.g. accounts from Tesco or something to see what the impact really is on a like-for-like.
My apologies. My simplified remembering of what you said has let me down.
Does (1) imply that we would expect to see a 2.5% VAT increase take the form of a 1.25% increase in prices? Or am I oversimplifying again?
(2) makes your case very scarily. Since the tax revenue from one job is significantly lower than the cost of one person not employed, we would expect to see massive increases in welfare expenditure to compensate for the job losses when this VAT happens? Gulp.
I shall be very interested to see the results you mention in (3).
I do wonder... with all respect to yourself, you can't be the only economically literate man in the country -- why is there no one in government who follows the same logic as you? What I'm asking is -- what is their argument to justify all this?
OP,
1) It is that simple, correct.
2) There's a marginal tax/benefit rate of about 75%, so if somebody in a job paying £20,000 loses his job, the overall cost to the government (tax revenues lost minus welfare paid out) is about £15,000.
3) Me too. Problem is, if I'm right, things will already be going downhill.
Their logic is "because the EU say so" and "VAT is a stealth tax which voters don't seem to mind paying".
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