Triangulations, Third Ways and New Deals are all euphamisms for playing ‘Hide and Seek’ with reality. But reality is famously persistant and you can’t hide for long before it finds you. Then the game is up.
And even the ludicrously partisan BBC has to admit that the Labour government has a serious problem on the horizon:
“The Office for National Statistics said on Wednesday that the government’s coffers were £2.5bn in surplus last month, down by more than half on the same period last year, and well short of the £4.3bn predicted by analysts.”
The article points the finger at lower corporate tax takings but the real reason is that HMG has crossed over the Laffer Curve and further tax hikes will only result in diminishing returns.
This is a deeply worrying problem for a government that has ridden to power on the promise of an endless supply of lovely lolly to their core supporters in the public sector. That same public sector took them at their word and grows more militant by the day in its demands that HMG now cash the blank cheque they recklessly wrote to buy the election.
So the pot is empty and Chancellor Brown is left only with the option of massive borrowing to fund further spending. That means going back to the ‘bad old days’ of the 1970’s; something which Tony Blair has said repeatedly he is not prepared to countenance.
‘Hey reality, HMG is in the cupboard under the stairs’.
Politicians are in the business of getting elected, policy (and sticking to it) is a secondary consideration.
As long as Labour panders to those who benefit from the tax rises, or continues the “NHS in meltdown” scare strategy, people will vote for them – the 1970’s are only an election away.
This was TOTALLY predictable the day Brown published his Budget back in April.
Are we sure aobut the Laffer Curve bit? I can believe it, but would just like to see some supporting figures.
Does anyone have a clear set of numbers for increased tax burden, slice of GNP etc since 1997?
Not quite what you were after Mark but…
The Adam Smith Institute’s Tax Freedom Day is fairly interesting. http://www.taxfreedomday.co.uk/
Mark,
I believe that government take is already well over 40% of GDP and the hike in payroll tax (NI), announced in the last budget and due to take effect next year, will push the government over the Laffer limit.
I can’t imagine what’s controversial about the Laffer curve (perhaps the precise shape, but the general idea is sound). It’s basic economics: decrease the marginal benefits, keep marginal costs constant, and investment and productivity fall.
Thanks, everyone, for those pointers to sites like the Tax Freedom Day.
The Laffer Curve itself isn’t controversial for me, I believe in it – I was wondering about the nitty gritty of actual details, since the point where it bites, and whether Britain is there yet, is a bit controversial for me.
Statistics is fiddly stuff – I recall reading that 11 years of Thatcher’s governments only cut the public sector share of GDP from 43 per cent to 42 per cent, but of course there are many ways to measure these things. The detail is the hard part. Over forty per cent now, I can well believe – my absolute random guess would be back up near 44 or even 45 per cent.
Not being sceptical or denying, just wondered if anyone can help out with some closer counting.
Best wishes,
Thanks, everyone, for those pointers to sites like the Tax Freedom Day.
The Laffer Curve itself isn’t controversial for me, I believe in it – I was wondering about the nitty gritty of actual details, since the point where it bites, and whether Britain is there yet, is a bit controversial for me.
Statistics is fiddly stuff – I recall reading that 11 years of Thatcher’s governments only cut the public sector share of GDP from 43 per cent to 42 per cent, but of course there are many ways to measure these things. The detail is the hard part. Over forty per cent now, I can well believe – my absolute random guess would be back up near 44 or even 45 per cent.
Not being sceptical or denying, just wondered if anyone can help out with some closer counting.
Best wishes,
Overall, the economy remains buoyed up by consumer spending aided by credit and the rise in house prices (now a speculative bubble).
Haven’t we been here before?
Of course it’s not just the level of the total tax take but also how complex the tax system is for companies and individuals to cope with. A flat 40% sales or income tax might well be less damaging than the current chaotic “system”.
Equally important is to consider the level of red-tape on top of the tax level. That is much worse than under Thatcher. In addition to the Laffer Curve, we need an equivalent for regulations – perhaps a “Crapper Curve”.