The Government wants taxation to contribute just a 1/5 to deficit reduction. A range of think tanks and The Economist are advising them to focus more on taxes.
A range of progressive think tanks and even the Economist magazine are advising the Government to reduce the deficit with a greater focus on tax rises – George Osborne has said he wants to rely on taxes for a fifth of the consolidation. But as the picture below from the Economist shows, most of the largest fiscal consolidations have seen a more balanced ratio.
In an article yesterday for Left Foot Forward to accompany a new report, ‘Deficit reduction and the role of taxes‘, Tony Dolphin of IPPR writes:
“If the government wants to be progressive, it should give a greater role to higher taxes … Which taxes go up – whether now or at a later date, also matters. Increasing the standard rate of VAT is not the act of a progressive government…
“A better option – one that shares the burden of deficit reduction around a large proportion of the population but in a progressive way – would be to increase the basic and higher rates of income tax, something that has not been done in the UK since the mid-1970s. A 3p increase in the basic and higher rates of income tax would raise £15 billion – around one-fifth of the amount needed to eliminate the structural deficit”
Echoing these arguments, Matthew Whittaker of the Resolution Foundation writes, “the deficit reduction plan must exhaust every single potential progressive taxation measure before turning to spending”. He goes on to call for a wealth tax.
Meanwhile, in the Guardian yesterday, Labour leadership candidate David Miliband writes:
“If the Tories stick to their proposed formula of £4 of cuts for every £1 of tax rises this will see departmental spending slashed by a third outside of the NHS and international development. The balance should be 2:1.”
The Tories approach is also challenged by the Demos think tank who also call for a 2:1 rather than 4:1 ratio. They urge the Government to introduce £11 billion of tax rises above and beyond Labour’s plans which included the introduction of a 50p rate and increase National Insurance Contributions. Demos propose aligning all capital gains rates with income tax rates and charging CGT on primary residences when sold; raising the basic rate of income tax by 1p; moving from per-passenger air duty to per-plane air duty; and introducing a carbon tax. Even the Economist believes that the Conservative’s plans are too focused on spending cuts:
Unwelcome though it is, a contribution from higher taxes is required. Just how big it should be is a matter of dispute. The Tories have said they want to rely on taxes for a fifth of the consolidation. That may be too ambitious. If something like 2% of GDP were found by higher taxes, leaving spending to be cut by 5% of GDP, it would still be a tougher mix than all but two of the ten biggest OECD deficit-cutters managed.
The outlier in this debate remain the right-wing think tank, Reform, who this week called for over 90 per cent of the deficit reduction to come from spending cuts.
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27 Responses to “Progressive taxation to reduce the deficit”
Trakgalvis
Progressive taxation to reduce the deficit http://bit.ly/d309NZ via @leftfootfwd
Anon E Mouse
Mr.Sensible – There you go again trying to hit the poor in this country whilst agreeing to the last governments DOUBLING of Inheritance Tax for wealthy married couples.
I ask (again x 3); Why is it OK for a Labour government to DOUBLE the tax allowance, up to £600000 for wealthy married couples, yet not take £3.00 a week less from poorer couples of their OWN money. It’s their money Mr.S, not the governments.
Why do you repeatedly justify rewarding the rich in this manner and (seem) to care nothing for less wealthy people in this country?
The Labour Party wrecked the finances in this country, like every Labour government before it, it lost centre left leaning voters like myself and my whole family on the way and for some reason you seem to want not to accept what comes with no longer being in power.
If the government wants to stop millions being wasted on cars, flights, free holidays, sofas, pot plants and god knows what else… why would you have a problem with that? It isn’t there money. It’s ours.
If by saving £BILLIONS in cuts they are criticised by you for spending a few million on their projects, as governments have a right to do it seems you ought to move to Cuba, Iran or North Korea.
Every other country on the planet has given up on (real) socialism and not adopted the Stalinist approach to government you seem to miss. It’s over Mr.S – get used to it…
Anon E Mouse
Mr.Sensible – And those “free school meals” are not “free” – someone pays for them – obviously not you. Why can’t parents feed their own children instead of the state?
You seem to be so upset and stressed about the Dear Leader Gordon Brown never ever being elected once as PM, that to be helpful I have a link here for you…
http://www.tripadvisor.com/Flights-g294443-North_Korea-Cheap_Discount_Airfares.html
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Jacquie Martin
Anon
I don’t want to come between Mr Sensible and yourself – you obviously have something going on in this blog.
But, as you pointed out – you have asked three times now why it’s okay to double the IHT allowance. I’m sorry to disillusion you but it wasn’t actually doubled. It was an illusion – a trick in effect.
It was always possible for married couples to benefit from a double allowance. However, you had to set up a tax planning scheme to do so via a trust. In reality, only the wealthy did it because their financial advisers would have made them aware of the possibility.
What Darling did was to make it easier for couples. The thinking behind it was that property prices had risen so much, that when the second parent died leaving a family home, their children were being faced with large tax bills. He regarded that as unfair on middle England homeowners. Their wealth is usually only contained in their homes.
Indeed there was one instance where the 80+ sister of a widow was faced with having to sell the house they’d shared, because the widow and her late husband had never set up a trust or other planning arrangements. There was no money as such – it was nominal based on the value of the property. Sadly, that didn’t stop the tax being due.
Incidentally, I didn’t agree with it because it was restricted to married/civil partnered couples, not co-habitees.
The marriage allowance is a different thing altogether, and I’m with Mr Sensible on this. It is a completely new tax break – not an existing one where only a select few knew about it. It’s going to cost 550m. It will only be possible to benefit if one spouse doesn’t use their allowance fully.
I know you are arguing it’s your money you’re getting back, but you’re also getting mine as a single person. And widows, co-habiting couples, married couples where both work full-time. We’re all being told we must pay for one half of a married couple to stay at home. Particularly galling I suspect if you’re a widow. Especially as you can get it even if you’re on your fifth wife/husband.
I find the underlying rationale somewhat sinister: that being married is better than not. That is social engineering and it’s not reflective of the current lifestyle choices that people make. There was another report out this week refuting the Tory claim that marriage is best for children.
I found it interesting that in the 2009 conference speech, Osborne proposed removing the joint family element of CTC because we couldn’t justify the cost, but for some reason we can justify this.
It’s an expense we don;t need right now. It’s regressive as it imposes morals on society, and reduces financial independence by reducing the workforce and forcing disclosure of personal income.