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.
27 Responses to “Progressive taxation to reduce the deficit”
jennifer roberts
RT @wdjstraw: There is an alternative to Osborne's welfare cuts & VAT rise: progressive taxation to reduce the deficit http://bit.ly/dCuAH6
Emma Jackson Stuart
RT @wdjstraw: There is an alternative to Osborne's welfare cuts & VAT rise: progressive taxation to reduce the deficit http://bit.ly/dCuAH6
Cantab83
Why not introduce a wealth tax on fixed assets, like property? I’m thinking of Vince Cable’s Mansion Tax, but with a bit more economic muscle behind it. I know his proposal of a 0.5% levy on properties over £2m wouldn’t raise that much money, but a tax rate of 2% on properties over £500k definitely would. In fact it could raise well over £10bn, and possibly double that if it was applied to all empty homes, land banks, second homes etc. It would also bring it into line with Council Tax which is currently levied at an average of about 1% on house values, but is effectively capped for homes worth more than about £500k.
Such a tax would be fair and consistent, with those in the 40% income tax bracket being taxed on the rental potential of their property (approx. 5% of asset value) at the same rate as they are on their income, as I have explained here. It is also a tax that the rich can’t avoid. After all, you can’t move your property offshore. Surely in times of economic hardship it is better to tax those with spare cash and wealth who aren’t spending it, rather than those without who are already spending every penny they have. This Mansion Tax would be particularly apposite given that this economic mess was partially caused by the housing boom. Moreover, taxing idle wealth and nonproductive assets makes more sense than taxing productive ones.
As for VAT, shouldn’t we increase it first for luxury goods and those with ticket prices of more that £1000, rather than for all goods?
Anon E Mouse
Jacquie Martin – I’m not married by choice – live with a feminist social worker.
I support ANYTHING that means the public have less of their own money taken by politicians of any political party…
Fat Bloke on Tour
Mr Mouse …
I fear that in the near future you are going live with an unemployed feminist social worker.
At least youn are naked regarding your hypocrisy, you want to pay as little tax as possible while sharing your lifestyle with a public sector employee.
The concept of a turkey voting for Christmas does not do justice to your rampant stupidity.