Deficit fetishism

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With his talk of disrupting the ‘whole way of life’ of Britain’s entire population by the most severe spending cuts for a generation, it’s perfectly clear that David Cameron is softening us up for what the Tories have always been striving for all along, namely the shrinking of the State and the further privatisation and voluntarisation of as many public sector functions as they can get away with.   Nobody doubts that the budget deficit at £156b is far too high and needs to be reduced, but that still leaves open three fundamental questions: the timing, who should pay, and the mechanisms for achieving the reduction.

On timing, as has been repeatedly said, to make drastic cuts this year when the economic recovery is still extremely fragile is taking far too great a risk of precipitating a second collapse, a double-dip recession.

As to who should pay, it is monstrous that this Tory Government (for that is what it is) is shifting the burden of the financial crash wholly away from its perpetrators, the banks, and on to its victims, public services and public sector jobs – probably 100,000 – 300,000 of them.   Meanwhile the banks, whose greed and recklessness caused the meltdown, are being let off scot-free, neither subject to a levy to pay back all the bail-out monies nor being made to restore bank lending to businesses and homeowners to its pre-2007 levels which was the ostensible reason for the bail-outs in the first place.

But the really big question which Cameron is desperate to avoid being raised at all is this: why are drastic spending cuts needed at all when there are far better and more efficient ways to cut the deficit?   It can be reduced by using the proceeds of economic growth or by raising taxes as well as by cutting public expenditure.   Here’s how.

The Government’s growth forecast for next year is a modest 2%, and is expected to rise slightly in future years.   Since Britain’s GDP is some £1.5 trillions, a minimum 2% growth over the next 4 years would increase the country’s income by £120b, and if as usual Government tax revenues take some 40% of this, the Government will have available about an extra £50b to cut the deficit.       If the goal now, as for the previous Government, is to halve the deficit within 4 years, there would still be a gap of about £28bn.

That could readily be met by a mix of taxes on the banks themselves and on the hyper-rich whose wealth, according to the Sunday Times’ Rich List, has increased by £335b since 1997, including £77b over the last year.   Such taxes could include raising CGT to the 40% higher rate of income tax, ending the non-dom tax loophole, extending the 50% income tax rate to those with incomes over £100,00, and ending tax reliefs at the higher 40% rate, as well as a modest wealth tax and a Tobin tax on financial transactions.

Such a plan would be infinitely fairer and economically far more productive by preserving the country’s economic base since such a high proportion of private investment and growth derives indirectly from public expenditure.    Surely, Prime Minister, this alternative should be seriously considered, or is this whole exercise just a cover for the ideological stripping out of the Welfare State that your party has always demanded?