Friday, 14 November 2014

Probably true.

Ryan Bourne is a bit of an apologist for the corporatists and rent seekers and is incapable of distinguishing between earned and unearned income, but you can't argue with facts.

From City AM:

In fact, it may well be that significant hikes in taxes are not even feasible – even if they were considered necessary or desirable.

The UK already has a high tax burden. According to the Treasury’s measure, it currently stands at 37 per cent of GDP with a forecast increase to 38 per cent in the next Parliament. But 38 per cent of GDP represents the absolute maximum that governments of any political persuasion have been able to raise in revenue – irrespective of the tax rates they have set.

So it looks like we are already at the upper limits of our taxable capacity. With increasing labour and capital mobility among those paying the lion’s share of taxes, we might expect this maximum taxable capacity to fall further in the future.

This is a slightly different way of thinking about the Laffer Curve, I suppose.

His figure of 38 per cent seems about right (let's not bicker over a per cent or two either way), no UK government has ever raised more than that, not even the supposed high tax governments of yesteryear. So let's face facts and try and keep spending down to 38 per cent max.
What is not clear is how much of that 38 per cent is really tax (and how much of government spending is really spending).

For example: until last year, my wife and I received Child Benefit, so a primitive mind would count the £2,000-odd a year we received both as tax (which we'd paid in the first place) and as spending. It's a philosophical point whether it's both or neither.

Some higher earners chose to waive their Child Benefit entitlement without receiving a tax cut; does that mean the government is spending less? Sort of. Does it mean the government is taxing less? Nope.

I, being pig headed, decided to continue claiming the Child Benefit but the price I pay is that they add the equal and opposite amount to my tax bill. Would I be paying less tax if I waived the Child Benefit? Nope, clearly not.

We've got the same dilemma with e.g. public sector employees. As Lola has pointed out often enough, public sector employees cost less than their headline salaries because the government only pays out part of it, it keeps the rest under the heading "PAYE".

Ditto with Housing Benefit "paid" by DWP to local councils. You can count payments from the private sector to the government as "tax" and you can count payments by the government to the private sector as "spending" but book keeping transfers between government departments are neither.

Remember that local councils have to pool most of their income from social housing and hand it over to Whitehall (or they did until recently). That's neither tax nor spending. Housing Benefit payments from DWP to local councils are the same nothing, but in the other direction.


Lola said...

The perversity of public accounting is one of my pet hates (actually - I don't 'hate' anything or anybody), but you know what I mean.

IMHO the whole thing is designed to mask what is really going on. A bit of simple analysis allows to cross out all sorts of cross transfers. The trick then would be to get government to stop doing it all...

Fat chance.

mombers said...

MW, I also still claim CB and then give it back on my tax return, might as well take the interest free loan and also clog up the means testing system. Of course I also don't know if I'll be subject to means testing in advance, heaven forbid I lose my job or decide to engage in very aggressive tax avoidance by going contracting.
I also burnt a bit more public money by asking HMRC to hand over my wife's tax details to make sure that she isn't secretly earning more than me and should be handing the CB back instead of me. They now have a form that you can fill in online and they will violate your spouse's right to tax confidentiality and tell you if they earn more than you.
Interestingly the thresholds are not inflation linked so more and more people will get drawn into this over time just like higher rate tax. And also interesting is that you can feasibly be on Housing Benefit and have your CB taken away. You couldn't make it up!

Ben Jamin' said...

1.There should be an international league table of Government Costs % of GDP, (not spending).

2. Further refined by showing the effects of striping out heathcare, and/or education.

That might just about start make a fair comparison.

Why isn't this already standard practice?

Steven_L said...

The longer I work in the public sector, the more convinced I become that the main point of most of it is just to move lots of money around a lot of people, fairly quickly.

That and keeping people 'confident' that they are reasonably 'safe' and nothing too bad is coming around the corner lest they all panic.

Dinero said...

Yep it still a tax. Tax is a flow of a persons money directed by government directive. You can't net it off because you were one of the people who met the criteria to receive it back , as there were other people who did not, therefore it is still a taxation ie a flow of a persons money directed by government directive.

For illustration consider the extreme case where every payer paid £10 and then received £10 back. That you could net off , but for other cases no you cant net it off.

I'm not an expert on current taxation but tax and benefits where you have to earn first to receive a benefit as a tax reduction , well that maybe complicates inentives in the Laffer curve context.

Bayard said...

Years ago when I worked for the Civil Service, I used to think it was bonkers that 1) I "paid" income tax and 2) government departments paid VAT.