Last night's TV programme was a very good introduction to how the whole system 'works' (or not, as the case may be), but it did gloss over certain issues and was in some cases deliberately misleading. Bellwether trotted out a few of the main claims made in the programme over at HPC, I responded as follows (BW's claims in italics):
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"There are, we were told 7.5 million public sector workers, of which the poster children for the state, eg nurses, police etc, the front line services, make up only 2 million."
Correct, I have been saying this for ages. They missed off 'social workers' (sort of middle ground between teachers, police, prison officers, probation officers and district nurses) which are about 300,000 but they admit they included teachers, nurses, doctors in the private sector, so that all evens out nicely.
"The public sector is bigger than the private sector."
Now that is simply not true, and an exaggeration at best. It is perfectly easy to imagine a teeny tiny state, with only 1 million coppers, prison officers, firemen etc, but which raises 50% of GDP in taxation (preferably LVT but flat rate 50% income tax will do) and which pays this out as a Citizen's Income of about £10,000 per person per year (or less for kids, more for pensioners) and everybody just pays for his own health care or his children's education out of that.
A far more relevant statistic is not just the 7 or 8 million directly taxpayer funded jobs, but the fact that the state spends nearly twice as much on 'procurement' from the private sector as it does on public sector wages and pensions. Yup, one fifth of GDP goes in juicy contracts to party donors, brothers in law of councillors etc.
"benefits last year were in excess of income tax."
Quite true, but misleading. Income tax in the narrow sense is only about ten per cent of GDP, "welfare" is about five per cent and old age pensions six per cent. The other taxes on income (national insurance, corporation tax, value added tax) add up to nearly twice as much again as income tax.
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I suppose the most outrageous claim was that the British taxpayer is on the hook for debts of £4.8 trillion. Official public sector accumulated debt is about £1 trillion and the net present value of accrued public sector pension rights is another £1 trillion, plus minus bits and pieces like PFI, but it is no more than that.
It is a wild exaggeration to include the net present value of e.g. future old age pensions, because we have a pay-as-you-go system. Each taxpayer has to stump up a share of current pensions, so you could say that each taxpayer is committed to paying liabilities with a negative net present value of £X0,000, but most taxpayers will live long enough to receive twenty years' worth of old age pensions themselves, which is a positive net present value of £Y0,000. The fact that for many people X > Y (it certainly is in my case) is a separate issue.
And further, Allister Heath trotted out the mantra that 'if you tax something you get less of it', which is quite true for the productive economy (if you have payroll taxes, you get lower employment), but completely not true for taxes on the rental value of land. However, the minute the subject turns to taxes on land and buildings, Mr Heath throws his economist's hat in the corner in a foot-stamping frenzy and he turns into a tired old politician:
... that didn’t stop Darling from launching yet another raid on the better-off, with his new 5 per cent stamp duty on homes worth £1m or above. There was time when aspiration was rewarded in Britain; this is no longer true... At least the stamp duty hike is not as damaging as Vince Cable’s mansion tax, a purer and more devastating form of wealth tax.
Pray tell, which 'wealth' would be 'devastated' if we had a Mansion Tax, as poorly thought through as it was? Would the rental value of the affected villas or penthouses fall by one penny? Nope. Would millionaires take their land and buildings abroad? Nope. At worst, it's a 20% tax on the actual or notional rental income, which would bring the average tax rate on such largely unearned income closer to the punitive rates on most of the productive economy. Either we're in favour of flat taxes or we're not, eh?
They also majored on how Hong Kong's economy had grown exponentially since it adopted a flat income tax of 15% back in the 1960s (hooray) but didn't mention that half of Hong Kong government revenues come from granting leases of land (which is a very crude form of Land Value Tax, of course).
Elevate their cause?
5 hours ago
14 comments:
Thanks for posting that - d=saved me the bother. The key ommission of Hong Kongs LVT was particularly annoying. I am not so exercised by whether public debt is £4.8tr or £2tr. In either case it's far too effing much.
Neither of you have read this then.
http://burningourmoney.blogspot.com/2010/10/why-real-national-debt-is-real.html
Anon, of course I read it, I read lots of things before coming to a conclusion and what BOM say, in this instance, is complete rubbish.
To claim that the taxpayer is on the hook for £2.3 trn RBS or Lloyds liabilities is the wildest of wild exaggerations, and if The Guardian were to write this we would laugh it out of court.
As Lola says, £2 trn is bad enough, nobody's saying that it's a good thing to be £2 trn in hock.
Stamp duty is pretty evil IMHO.
Here's my reasoning:
(1) it isn't progressive (and I don't mean that in the lefty way), rather I mean that the minute you go over the threshold, stamp duty is payable on the entire amount. It would be far fairer to have a much lower threshold, and then charge tax on the amount above the threshold.
(2) it doesn't take into account the number of owners. Let's say two couples sell £250,001 houses. They club together and buy a £500,002 house. Stamp duty on two £250,001 houses is 3%; on the £500,002 house it's 4%. There is a pressure not to share houses.
(3) It's a transaction tax rather than a land tax. It would be better for us all if buying and selling of houses were easier. It would make the housing market freer, and freer is better and more likely to move to the "correct" price quicker. Charging by transaction also impedes the labour market, since someone who's just dropped £10,000 on a house's stamp duty is highly unlikely to want to move to a new house to take a better job.
(4) Everyone knows they have to pay stamp duty on their next purchase, so it gets added on to the sale price of their current property. (I'm pretty sure Mark's going to correct me on this one, arguing that stamp duty comes off the sale price)
In these respects, a mansion tax would be much better, as even if you keep hold of it for fifty years, there is an extraction of its value. If there were ten people living in it then the tax would be split ten ways. Perfect.
OP, yes, taken in isolation, SDLT is a truly shit tax, so as you point out, that makes Allister Heath all the stupider; and Mansion Tax all the better.
"(I'm pretty sure Mark's going to correct me on this one, arguing that stamp duty comes off the sale price)"
Yes of course it does! That's why Labour reduced SDLT on smaller properties for FTBs (or something or other) in the hope that it would boost sales and selling prices.
However, the effect is marginal, and in any event, two-thirds of house purchases/sales involve somebody buying AND selling, so whether the purchaser of seller bears the tax is neither here nor.
However, the effect is marginal, and in any event, two-thirds of house purchases/sales involve somebody buying AND selling, so whether the purchaser of seller bears the tax is neither here nor.
Ah, but if it makes the numbers bigger, then surely that is relevant? If stamp duty were 25%, then all houses would be "worth" 25% more, which banks and the land registry would merrily report as the current house price average.
OP, if SDLT were 25%, then hardly anybody would ever buy/sell houses. You'd buy once in a lifetime at most, and most people would just rent.
And even if the tax is borne by the vendor, then the tax itself does not appear as part of the selling price recorded at HM Land Registry.
But we're agreed it's a shit tax and that is the main thing.
Wasn't it Stamp Duty that sparked off the American War of Independence?
B, yes:
"In 1765 the Stamp Act was the first direct tax levied by Parliament on the colonies. All official documents, newspapers, almanacs, and pamphlets— decks of playing cards—were required to have the stamps."
"Wasn't it Stamp Duty that sparked off the American War of Independence?" Yes, Americans have always sought the benefit of government without the nuisance of paying for it. It's the American dream.
"Yes, Americans have always sought the benefit of government without the nuisance of paying for it. It's the American dream."
Actually that seems quite sensible to me. It could be looked as "Let's have some government but make sure it has as little money as possible so it can't bugger things up". Sounds good to me.
D: "Americans have always sought the benefit of government without the nuisance of paying for it."
I could paraphrase: "Home-Owner-Ists have always sought the benefit of government without the nuisance of paying for it."
L, which is why the government should dish out all revenues above and beyond the cost of the core functions (five per cent of GDP at most) as a Citizen's Income/health and education vouchers.
The claim, that the state sector is bigger than the private one is correct in financial terms in that 53% of the money is spent by the state. I accept it employs fewer people, even counting thjose on benefits but that simply shows it isn't very efficient.
Beyond that & something that Furkin didn't mention, is that the state sector's regulations destroy about the equivalent of 100% of the remaining economy. House prices & electricity are 4 times higher than they need be & there are many other examples. I suspect that even the carbon change levy doesn't count as government spending. That, plus the fact that electricity prices could be quartered if we had been allowed to build nuclear must count as several extra per cent beyond that 53%.
NC, I completely agree with all that. Whether we would be 50% or 100% wealthier in the absence of all the regulations and crap, we do not know... but there's only one way to find out.
Except this bit:
"53% of the money is spent by the state."
There is a huge difference between the government collecting 50% of GDP in tax and spending it on bureaucrats; or collecting 50% of GDP in tax and dishing it out as a Citizen's Income. Both are 'high tax' but one is 'big goverment' and the other is quite clearly 'small government'. Of all the taxes collected, two thirds is spent on bureaucracy, so we are of course much closer to the Big Government end of the scale.
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