From today's FT:
Sir, The problem with the government’s plan to accelerate public expenditure is the notorious and unavoidable time lag between such a plan and the resulting economic stimulus. The greatest financial crisis since the 1930s and the major recession we face require action that will be effective now rather than in one to three years' time.
The government has grasped the inevitable nettle of a massive deficit. It would be far more effective to use this to cut taxes now rather than to increase public expenditure in future. However, such tax cuts should be aimed mainly at middle and lower income families, whose disposable incomes have been already reduced by the recent increases in the cost of living. That would stimulate the economy directly and alleviate the growing personal debt crisis, with its consequent damage to the economy.
Michael Deeny, Salisbury, Wilts
A grim document
14 hours ago
5 comments:
But would the lower and middle class recipients of any tax cut spend the money or would they take the opportunity to repair their own balance sheets and capital adequacy ratios? Not that that would be a bad thing, just not the outcome some would desire.
Still, that would be better than Labour continuing to run up debts on wasteful public spending which will hamper any recover when it does come.
There is no soft answer to this down turn and the sooner we accept it the better.
GS, we need the right kind of tax cuts.
If they reduce VAT and Employer's NIC, then this will lead to an increase in economic activity. Whether people 'spend' their extra income or pay off mortgages is neither here nor there: if they spend it, then businesses have more money and can create more jobs and wealth; if people pay off mortgages then banks will have more money to lend to businesses etc.
Mark, can you please explain to me why, if the country is up to it's eyeballs in debt and has to be bailed out by government funds (taxes) which will eventually be paid by taxpayers, that that money cannot firstly be given to us (the taxpayers) to be paid into a bank (nominated if you like by the Gumment) thus driving down debt owed by the banks to we taxpayers?
To simplify: total bail out of banks circa £30bn = £10000 per person, approx. That money is going round in a circle anyway so pass it through the hands of us, the public, then our debts are reduced and the banks still get the wherewithal to achieve liquidity.
STB.
p.s. Oh, and err, that means that fiat money benefits everyone and not just the bankers.
If I've got that wrong; call me on it.
If not, when I become PM you WILL be the Chancellor.
I can't explain it, because it is complete madness. The best short term fix for the banks would be debt-for-equity swaps. And for the economy the best medium term fix would be stripping out all the £100 billion of waste per annum (which Mr Deeny missed out of his letter) and e.g. scrapping VAT and Employer's NI.
> Tax is bad - Full stop
Actually that's wrong.
Tax is good for externalities, free rider problems and fighting rent-seeking.
Tax property values not incomes.
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