Big In Sudan

My outline budget for 2012-13

Forecast tax receipts for 2012-13 are £571 billion, so assuming we can get public spending levels back to 2003-04 levels (adjusted for 3% annual inflation) to get the deficit down to +/- nothing, here's how I'd raise that (I've checked the workings forwards and backwards).

All existing taxes can be assumed to be scrapped unless expressly mentioned on this list (so please don't come along asking "What about Inheritance Tax? What about Vehicle Excise Duty?" if it's not on the list, it's scrapped):

- Flat income tax of 10%, no personal allowance = £100 bn. Income from overseas will be exempt from UK tax (unless avoidance was afoot).

- Flat corporation tax of 10% (but keep surcharge for North Sea companies) = £20 bn

- Income tax at existing rates 20% and 40% on pensions/pension funds which have received tax relief or accrued prior to 6 April 2012= £20 bn. If people would like to withdraw cash or shares from their pension fund, they will be free to do so and the tax charge will be a flat 20% of the value of assets withdrawn.

- Ad valorem 10 % duty on imports of physical goods 10% = £50 bn (it's mildly protectionist and a bit of a cop-out, but needs must).

- Petrol, booze, tobacco and gambling duties, no changes (maybe reduce tobacco duties a bit and increase fuel duty as VAT will no longer apply), chuck in duties on various drugs which will be legalised; auction proceeds from radio spectrum, airport landing slots etc = £80 bn

- Ad valorem 1% tax on new goods to cover waste disposal costs = £5 bn

- Bank asset tax of 0.5% on higher of UK financial assets or UK deposits = £30 bn (banks will deleverage and shrink their balance sheets like topsy, so the rate will be nudged up in future years to keep revenues constant.

- Business Rates on commercial land and buildings will be approx. doubled and made more like Site Value Rating = £50 bn

- Domestic Rates at 3.5% - 4% of current market value of residential land and buildings = £220 bn*

Total £575 bn
-------------------------------
The welfare system as it stands (excluding payments for severe disability and long-term care) will be replaced in its entirety with a flat rate, non-contributory, non-taxable Citizen's Income/Pension as follows:
Children up to 18 = £35/week
Young adults to 24 = £52/week
Adults 25 - 64 = £70/week
Citizen's Pension for 65 and over = £140/week.

The total cost of the scheme will be about £240 billion (a bit less than the current welfare system), which is not uncoincidentally, a similar amount to that raised in Domestic Rates.

These amounts will be deducted from a household's Domestic Rates bill and any surplus paid out in cash monthly. Approximately three-quarters of households will be due a small cash rebate.
-------------------------------
* This is the only contentious bit. We don't have time to implement proper Land Value Tax in the next three weeks, so all homes will be valued using the same computerised method as in Northern Ireland in 2005 and allocated to twenty-six bands which are each 20% 'wide'. The annual tax will work out at about 3.7% of the starting value for each band. Band A will be for homes worth between £50,000 and £60,000 (annual Rates approx. £1,800), all the way up to Band Z for homes worth more than £4,800,000 (annual Rates approx. £175,000).

To put your minds at rest, over ninety per cent of homes will be in Band A to Band K and the tax for Band K will be about £11,500 a year; the Citizen's Income for two parents, two kids will be over £9,000 a year, so it's not really a large amount of money in net terms.

If anybody wants to gripe that his home should have been allocated to a lower band, then, unless it is quite clear there has been a misallocation, before a case is looked at, that person will have to submit details of all his income and assets for the previous year. If it turns out (as it will in nine out of ten cases) that his overall tax bill will go down anyway, then no need for a downwards reallocation.

Pensioners who cannot afford to or do not want to pay will be able to enter into a binding will and their heirs will be asked to pay the Rates on their behalf. if the heirs are unwilling or unable to pay, the rates will be rolled up and redeemed on the death of the surviving owner or any earlier disposal.

Happy Mother's Day

We've done the "putting flowers in water" and "handing over the cards" bits without too much of a hitch, I shall now set about trying to cook the M&S Mother's Day £15 meal-for-four shown in the foreground (wine still in fridge):

One for Kj

It appears that the hard pressed, hard working, squeezed middle over in Norway are busily scrimping and saving to build up private wealth to provide themselves with something to fall back on in retirement and something to leave to their children etc etc:

Norway is moving closer to a housing bubble as the central bank’s strategy of cutting interest rates to weaken the krone spurs credit growth and bloats property values.

A day after Norway’s financial regulator said the biggest domestic threat to the economy comes from an overheated property market as borrowers bet rates will stay low, Norges Bank Governor Oeystein Olsen on March 14 demonstrated he won’t allow further krone gains by cutting the bank’s main interest rate a quarter of a percentage point to 1.5 percent.

The country may already be in a housing bubble, according to Robert Shiller, the co-creator of the S&P/Case-Shiller (SPCS20) home- price index who predicted the U.S. subprime mortgage crash. Policy makers should “start worrying now,” Shiller said in an interview in Copenhagen in January. Norway’s Financial Supervisory Authority this week told banks to build up their capital buffers to prepare for increased losses as low central bank rates continue to fuel credit-market imbalances...

The irony is that much of Norway's national wealth was built up by a very Georgist approach to collecting that self-same national wealth via the tax system (or not allowing national wealth to be dissipated and privatised or sold off to banks). Their entire sovereign wealth fund is merely all the taxes collected from oil extraction in their half of the North Sea (the bit which the UK generously/foolishly allowed them to call their own) and this is a large part (not being in the EU must have helped) of what has put them in such an enviable fiscal position:

The economy of the world’s seventh-largest oil exporter has steered clear of Europe’s sovereign-debt crisis. The government has no net debt and the biggest budget surplus of any AAA-rated nation, thanks to a $600 billion sovereign-wealth fund. Unemployment fell to 2.7 percent in February, Europe’s lowest rate, the government said on March 1. Norway, like Switzerland, isn’t a member of the European Union.

Do they not get it that land rents and resource rents are much the same thing? If they'd taxed land rents rather than incomes, that sovereign wealth fund might be twice as big and their economy would be in an even better shape. Taxing land rents acts like a much higher interest rate on land purchases alone, but affects nothing else, so even if they left their central bank rate at zero per cent all that extra liquidity would go into the real economy and not a speculative bubble.

As to dampening the value of your currency, that's easy, you just keep printing it and buying up other currencies until the exchange rate position reverses, and then you convert back into your own currency again, booking a handsome profit in the process.

Ah well.

Ninja cow

Spotted by The Proglodyte at Interrobang.

T'would be disrespectful to cut and paste, so toddle on over there if you want to see the video.

"Teen shot in homekill mishap"

Emailed to me by Murray W, from stuff.co.nz:

A teenager is undergoing emergency surgery after being hit by a bullet which ricocheted off an animal's head during a homekill which went wrong in north-west Auckland. Police said the accident happened at 11.15am on a rural farm property on Peak Rd, Helensville, when a slaughterman reportedly shot a cow in the head.

The bullet ricocheted off the animal's head and hit the slaughterman's 18-year-old assistant in the shoulder. The victim was flown to Auckland Hospital. Police have informed his family of the accident. A hospital spokeswoman said the teen was in a critical condition this afternoon.

A spokesman from the police northern communication centre said police spoke to the slaughterman at the scene. He did not know if police had formally interviewed him. Police were conducting a scene examination at the accident site which is understood to be near Gumboots Early Learning Centre. They were also interviewing witnesses.

A police spokesman said the cow did not die from the initial gun shot, but was later shot dead by police. He said the animal was knocked out by the first bullet but was still moving.

The spokesman said the slaughterman did not kill the animal with a second shot because he was concerned about his assistant. He said police had not alerting the SPCA about the incident because the slaughterman "did not have evil intent". Caregivers at the learning centre said the first they knew of the accident was when they saw a helicopter fly over.

A resident living on Peak Rd passed the accident scene, about one kilometre from the intersection of Peak and Old North roads, on her way home about 1pm. She said a homekill van was parked just off the road and police were at the scene. Both OSH and the Department of Labour had been notified and were also investigating.

There's one badly injured every minute.

blogspot.co.uk

Further to my recent post blogspot.com.au, all UK Blogger users will be pleased to hear that their url's have been changed from ...blogspot.com to ...blogspot.co.uk as of not very long ago.

Why Big Business quite likes VAT

Here's a chart showing the break even point for an industry where the fixed costs of setting up in business are £100 a year and the marginal extra cost per unit manufactured and sold is £1. The selling price for these items happens to be £5.

The average cost per unit is simply [fixed costs plus total marginal costs] divided by output, so the break even point is an output of at least 25. At that level of output, your total costs are [£100 fixed + 25 x £1 per unit} = £125 and you can sell them for 25 x £5 = £125. In this country, Country A, there are no taxes on income, profits or turnover, so that is the end of the matter (click to enlarge):The government of Country B (which is run by the landowners and banks) says "Sorry lads, but we need to raise taxes from you, so we are going to slap you with a corporation tax of 46%". So the marginal businesses, who have only just managed to break into the market, or who are in danger of going out of business, pay nothing, and the large established businesses with an output of 70 units are paying £1.18 tax per unit sold. The good news is that the break even point is largely unchanged at 25, so the economy still benefits from free competition and output is not unduly stifled:The area between the green line and the red line indicates how much corporation tax is raised.
-----------------------------------
The large established businesses in Country C see which way the wind is blowing. Taking a lesson from their land owning and banking chums, they lobby hard against corporation tax but admit through gritted teeth that they'd accept the imposition of a turnover tax instead (called Value Added Tax in the UK*).

So the turnover tax is imposed at 50p/unit sold, this pushes a few marginal producers out of business (those with output less than 30 units), so the turnover tax is increased a bit more and a bit more (and each time a couple of marginal producers go out of business).

In the long run, all businesses with an output of less than 34 go out of business and the turnover tax ends up at £1/unit sold so that the total tax raised (the area between the red and green lines) is the same as in Country B (to make it a fair comparison):As you can see, having a turnover tax rather than a profits tax has two big advantages for the large established producers in Country C:

1. They actually pay less tax per unit (£1) then they would in Country B (where the tax per unit would be £1.18). And businesses with an output of 55 or less are paying more tax per unit, in the case of the smaller businesses, considerably more.

2. They are nicely insulated from competition, because it is much more difficult for new entrants to get their annual sales up to 34 units than it was to hit the old break even level of 25 units; all those producers with output of 34 or less will struggle badly and go out of business. All those businesses with output of less than 55 will be paying more turnover tax than they would be paying in corporation tax. So with a bit of luck the volume of business the really big businesses gets increases; or it might be that GDP falls and unemployment increases. But that is not the problem of the Chairman of a really big business, is it?
-----------------------------------------
To illustrate those points, here is a straight comparison between net profits of businesses in Country A which has corporation tax (the red line) and in Country B which has a turnover tax (the blue line):* Surprisingly, a lot of people in the UK believe the myth put about by politicians that VAT somehow magically doesn't affect economic activity and that consumers blithely pay it without spending less money on other things. I usually get a comment to that effect every time I do a post on VAT. Just goes to show whom people really believe, when all economic logic and actually looking at hard evidence says that VAT is borne at least two-thirds by the producer.

They (want to) own land! Give them money!

From Estate Agent Today:*

Countrywide, the UK’s largest estate agent, has called on the Government to act now to boost the property market, saying that the current low level of house sales is ‘unsustainable’. The NAEA has also made representations to Chancellor George Osborne, asking for there to be no further property taxes but for Stamp Duty to be reformed.

Countrywide is calling on Osborne to introduce mortgage relief for first-time buyers, set tough mortgage lending targets for banks, provide tax breaks for the private rented sector, and introduce incentives for development projects.

Grenville Turner, group chief executive of Countrywide, said: “A recovery of the housing market is fundamental to economic recovery. Current transaction volumes are simply not sustainable. Based on current levels of activity, the average home owner moves house once every 25 years as opposed to [the historic norm of] once in every 12 years. This has wider implications for society, the labour market and the UK economy. The valuable economic contribution that the property market makes is being overlooked and there is a risk that current Government policy will be ineffective or, even worse, cause unnecessary volatility."

That's about as ass-backwards as you can get.

Quite clearly, estate agents like it when there are lots of purchases and sales, so if they want more people to move home, they ought to be calling for lower taxes on earned incomes, higher taxes on land and buildings and an end to subsidies of this nature, such as Support for Mortgage Interest, which enables people to hang on to a home they wouldn't be able to otherwise afford, thus preventing somebody who can afford it from buying it and not nudging the SMI claimants into buying somewhere cheaper.

As it happens, they are correct to claim that people moving home is important to the economic recovery, because by and large, people will move to where they can earn the most, even if they (as estate agents) are merely saying this out of naked self-interest.

The three specific measures they propose will all merely have the effect of pushing up the price of land and will not affect transaction volumes one iota - and tax breaks for the private rented sector will probably reduce the number of transactions (but boost income of letting agents).

We know from Nationwide's own chart that when MIRAS was phased out last time, the net amount which first-time buyers were prepared to pay remained unchanged - it was the people selling up who lost the benefit of the subsidy (and the income taxpayer in general who gained, because one man's tax break is another man's tax burden):* Via SBC at HPC.

UPDATE; Bob E has read to the end of the article and alerts us to this bit: "Among its other suggestions are a cap of 25% affordable housing units per development, to help builders achieve viability and produce more marketable schemes."

Righty-ho, make housing more affordable by pushing up the price and having less "affordable" housing.

"And still the falling rain"

I finally got round to buying the first Black Sabbath album on CD yesterday (long story), the enclosed booklet includes the sleeve notes from the original gatefold album cover, which really set the bar very high for subsequent decades of Goth-schlock horror pretentiousness:

Still falls the rain, the veils of darkness shroud the blackened trees, which, contorted by some unseen violence, shed their tired leaves and bend their boughs towards a grey earth of severed bird wings. Among the grasses, poppies bleed before a gesticulating death and young rabbits, born dead in traps, stand motionless as though guarding the silence that surrounds and threatens to engulf all those that would listen.

Mute birds, tired of repeating yesterday's terrors, huddle together in the recesses of dark corners, heads turned from the dead, black swan that floats upturned in a small pool in the hollow. There emerges from this pool a faint sensual mist, that traces its way upwards to caress the chipped feet of the headless martyr's statue, whose only achievement was to die too soon and who couldn't wait to lose.

The cataract of darkness forms fully, the long black night begins, yet still, by the lake a young girl waits, unseeing she believes herself unseen. She smiles faintly at the distant tolling bell and the still falling rain"

It's a blinding album though, certainly one of the best albums of all time. Apparently it was recorded and mixed in two days.