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However silly no-tax-increases are, they should cut tax reliefs to pay off deficit

tax justice logoEnforcing £12bn welfare cuts (and a lot more beyond that if the deficit is really to be eliminated) is draconian and callous as a means of making the poor subsidise the rich so that the latter can walk away free of any liability, but no-tax-increases in this Parliament doesn’t end the matter. It doesn’t preclude cutting back sharply on enormous and wasteful tax breaks which could make a huge contribution to paying down the deficit.

To take one example, the IMF, no less, has calculated that fossil fuel companies globally get £3,400bn a year subsidies, at a rate of £10m every minute of every day, more than the total health spend of all the world’s governments. That is 6.5% of global GDP, and if the UK hands out fossil fuel subsidies proportionately to that, it would be spending £100bn a year subsidising oil, gas and coal. The current UK budget deficit is £92bn a year.

Take another example. The buy-to-let market is currently booming, and lat year according to the mortgage lender Kent Reliance British landlords made £112bn from capital gains and rental income. Over £44bn of this came from rents very largely paid for out of Housing Benefit grace of the government/taxpayer. This subsidy to private landlords can only increase in the current severe shortage in housing supply. What gives a bitter piquancy to this is that a third of all houses bought under the Right to Buy have now ended up bought by private landlords and their rents raised steadily towards market levels, sharply diminishing the supply of Council housing at rents that tenants could afford.

Another telling example is the colossal tax break that allows firms to write off payments on their borrowing against taxable earnings. This again is perverse. Before the financial crash in 2007-9 governments in Europe, including the UK, were spending 3% of GDP in foregone tax revenues in cheapening the cost of debt, more than on defence or on all its policies to help the poor. It isn’t even sensible. It encourages people to borrow more to buy property than they otherwise would, raises house prices, and encourages over-investment in real estate rather than in productive industry or services. It has reached the point where corporate financial decisions are motivated more by maximising tax relief on debt than on the needs of the underlying business. Nor would it be difficult to phase out these tax breaks for debt at the present time if it were done alongside the major lowering of the corporate tax rate that has occurred.

6 Comments

  1. David Pavett says:

    It is a sympton of the left’s failure to take economics seriously that many on the left can’t even get the language right. The headline to this piece invites to consider ways to “pay off the deficit”. In the body of the article we find talk of “paying down the deficit”.

    You can reduce or eliminate a deficit you cannot “pay it off” or “pay it down”. These terms apply to debt not deficit (i.e. an excess of an expenditure over income). This confusion between debt and deficit has been pointed out by several people several times on this blog but it sees to make no difference to the people who confuse the terms. The effect is to reinforce the belief that the people who write things like this believe that they have nothing to learn from debate about what they write.

    Have said that, of course I agree that the various hidden and overt subsides that siphon public money to private interests is a scandal that needs to be highlighted. More than that it should lead to a discussion as to the likely resistance to removing them and the rebalancing of the economy that this removal would produce. We badly need a discussion about the dependence of private enterprise on public financing and what this tells us about the limits beyond which private enterprise should be replaced by various forms of social enterprise.

  2. SANDRA CRAWFORD says:

    According to the Modern Monetary Theorists, government spends first, being an issuer of sovereign currency in the UK, and taxes afterwards. Government has the ability to spend on whatever it likes to create full employment, health, education, housing, jobs etc. In fact Keynes said that there would always be a limit to the private sector unless it was subsidised by government because without government it relies on bank credit.
    We all saw an example of this with the bank bailouts, a subsidy which came far too late and given wrongly to the wrong people.
    Having said all that – tax is still extremely important – especially to the left.
    Government has to tax to destroy money so that its deficit spending does not cause inflation. This is the only reason that government needs to curb the deficit. If there is no inflation and a lot of unemployment or under employment – government should run a higher deficit – get people back to work, and try to lift exports.
    he sectorial balance chart shows why this is true.
    The way in which government selects to tax is key in redistribution. Taxing the rich enables government to spend more on the poor – job creation, health, services etc.
    It stops monopolies in landlord ownership etc.
    So it is clear that this government has a divisive and cruel strategy. Lack of spending and the very poor manipulation of taxes serves the classes who pay them at the leaders dinners.
    http://coppolacomment.blogspot.co.uk/2015/03/repeat-after-me-sectoral-balances-must.html

  3. SANDRA CRAWFORD says:

    There is an excellent piece here which describes why New Labour and Tory austerity policies are self defeating and wrong, by William Black.
    It gives us an insight into where Labour should be scrutinising old wrong economic policies, and making changes.

  4. SANDRA CRAWFORD says:

    There is an excellent piece here which describes why New Labour and Tory austerity policies are self defeating and wrong, by William Black.
    It gives us an insight into where Labour should be scrutinising old wrong economic policies, and making changes.
    http://neweconomicperspectives.org/2015/05/new-labours-economic-illiteracy-exacts-a-terrible-price-im-afraid-there-is-no-money.html#more-9438

  5. syzygy says:

    Well put Sandra Crawford. Couldn’t agree more.

  6. Barry Ewart says:

    Some good points on money and it is interesting that the Tories have printed over £1.5tr via quantitative easing which Wolfgang Streeck in New Left Review argues has only bought off the financial crisis for a few years, and this is now being copied in Europe (with everyone copying the US).
    I like Streeck who also argues the rich and powerful haven’t a clue what to do!
    I wonder if Neo-Liberalism has also painted itself into a corner with its drive for cheap labour?
    This has reduced tax contributions and state aid to subsidise poverty pay is up to £11b (£1b for staff at major supermarkets alone).
    Of course decent pay rises are out of he question as this would upset the Tories pals the bosses.
    I was surpised when Burke here demonstrated that consumption had remained steady during the last 5 years until I recalled that this is probably mainly down to the old credit card and unsustainable levels of personal debt.
    Oh and there may be a housing bubble rumbling under the surface.
    I thought a Marxist economist recently may have been a bit far fetched claiming that a section of capital (oil) was willing to take a temporary hit – making us all feel a bit better off without pay rises 6 months before an election (some of the financial pages had been arguing it was down to a battle between mainly Saudi oil and US fracking companies but this may have been a ruse) so our comrade may have been bang on the mark!
    I remember Cameron paying a visit to Saudi probably to promote arms sales and then a few months later we have oil reducing per barrel and now Britain and the US supporting Saudi bombing in Yeman.
    Interesting times indeed – I agree with Burke here about he need for state led public investment (and the private sector would pour in behind to feed th chain) but belive we shuld eliminate the deficit at a stroke – windfall taxes big business (as Pettofor argues they are sat on £800b in the UK), tax rich & land and 1% financial transaction tax EC (and involve Greece) plus then address UK and global human need to generate a genuine global feel good factor.
    Interesting times indeed!

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