Why the Taxpayers’ Alliance’s tax plans are dead in the water on day one

The Taxpayers’ Alliance’s tax plans involve cutting state spending to 33% - which is ludicrous.

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To much fanfare, the Taxpayers’ Alliance’s 2020 tax commission has reported this morning.

The uber-Thatcherite campaigning group and darling of the Tory backbenchers has delivered a paleoconservative’s wish list: An effective flat rate of income tax of 30 per cent, the abolition of inheritance tax and the slashing of motoring taxes.

However, there is one rather crucial catch before we can all skip off to low-tax paradise:

Our starting point is the chancellor’s long-term forecasts: he hopes to see public spending as a share of GDP fall from 48 per cent last year to 39 per ce in five years’ time.

Our proposals would take this further, reducing public spending to 33 per cent of GDP by 2020 or thereabouts.

State spending at 33 per cent would be at a lower level than at any point sinc 1940.

It touched 34 per cent in 1989 and 35 per cent in 2000, when the baby-boomers – those born between 1945 and 1960 when post-war fertility was at its peak – were in their working-age prime, and more than counterbalanced dependents at either end of the age spectrum.

 


See also:

Tax Commission proposals would cause £120 billion of extra cuts 21 May 2012


 

However, as the baby-boomers become pensioners, the pressure on government spending is set to soar, and anyone who thinks otherwise is deluding themselves, as has been argued by conservative commentator Daniel Knowles:

In the future, 40 per cent of GDP will not get us anywhere near the level of services and welfare that we got used to under New Labour.

“According to the Office for Budget Responsibility, thanks to our ageing population, healthcare spending alone will have to go up by 5 per cent of GDP just to maintain the same level of service.

“The increasing pensions bill is almost as brutal. At New Labour levels of taxation, public services have to get worse – to maintain them, we have to spend ever more.”

It’s not just the UK where state spending is set to rise.

Josh Barro wrote in  the American free market magazine Forbes about US  federal spending:

“Government spending as a percentage of GDP cannot be expected to stay flat over time.

“That doesn’t mean we should just say “eh, whatever” and balance the budget entirely on the tax side. But it does mean we should expect the federal budget to be a bigger share of the economy in 2020 than it was in 2000, and structure the tax code accordingly.”

However, according to the 2020 Public Services Trust, spending in the UK may rise to near two-thirds of GDP:

Public spending as a percentage of GDP will rise to more than 63% of national income by 2030, a thinktank says, to meet the rising costs of ageing, an unexpected fertility boom, climate change and the price of replacing decrepit infrastructure.

The 2020 Public Services Trust – a “dead centre” commission that includes both Labour and Tory luminaries such as Blair’s former policy guru Matthew Taylor and the Tory MP Stephen Dorrell – calls for a “system redesign” of government to head off a permanent fiscal crisis.

In the worst case scenario – if growth remains sluggish, averaging just 1.75% – then public spending would reach £880bn, eating up almost two-thirds of GDP within two decades.

The think tank suggests that by 2028 the most realistic scenario sees state spending rise to between 49 and 52 per cent.

Whatever the actually figure, basing a tax policy on a government spend of 33 per cent may be give right-wingers great personal gratification, but it only has the loosest relationship possible with reality.

 


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21 Responses to “Why the Taxpayers’ Alliance’s tax plans are dead in the water on day one”

  1. leftlinks

    Left Foot Forward – Why the Taxpayers’ Alliance’s tax plans are dead in the water on day one http://t.co/VdUp3NeM

  2. James Mills

    Frm earlier: Why the @the_tpa’s tax plans are dead in the water on day one, writes @DanielElton: http://t.co/LB0VGXgC

  3. Cllr John Ferrett

    RT @leftfootfwd: Why the Taxpayers' Alliance's tax plans are dead in the water on day one http://t.co/QgVRZxlp

  4. Gareth Siddorn

    I had assumed the term "paleoconservative" was a witty invention. Who knew? http://t.co/fgclDf5p via @leftfootfwd http://t.co/Sl7fmKRy

  5. Lord Blagger

    FDR implemented Keynes and the New Deal.

    Government spending peaked at 10.7% as a percentage of GDP. So you just need a small increase to get a result, if Keynes was right.

    Just think, a whopping 50% Keynesian boost will mean boom all the way, if Keynes were right. If you don’t get a boost with 50% of money spent by the government, then Keynes is wrong.

    Ah yes, Keynes is wrong.

    Now the tax payer’s alliance are barking. You won’t get taxation down at that percentage, because the state has all those debts. You will however, get state spending cut to those levels.

  6. Michael

    Why the Taxpayers’ Alliance’s tax plans are dead in the water on day one – http://t.co/S1Nru27i

  7. Brian Tomkinson

    Why the Taxpayers’ Alliance’s tax plans are dead in the water on day one – http://t.co/S1Nru27i

  8. Blarg1987

    Iagree with your point in the TPA but how do you explain the economic boom between the 50’s and 70’s?

  9. Neil Courtman

    Why the Taxpayers’ Alliance’s tax plans are dead in the water on day one – http://t.co/S1Nru27i

  10. Annette Carter

    Why the Taxpayer Alliance's tax plans are dead in the water | Left …: However, as the baby-boomers become pens… http://t.co/1md6KxZo

  11. Anonymous

    They were spending people’s pension contributions, creating a debt that has now fallen due. Since they spent it, the can’t afford to pay it now.

    So pensions rather than getting 19K a year, are being given 5.4K, and being told to be grateful.

  12. Anonymous

    Well of course you will, in your worlds, without pensions, the NHS, fire service…

  13. Anonymous

    5.4K rather than 1.2K, rather.

    Let’s look at Singapore’s CPF. Oh right, it’s averaged HALF INFLATION. That’s what you want to do to people’s savings, or worse.

  14. Anonymous

    Easy – wages were pushing out capital. It’s only since that’s reversed in the 70’s that this has become an issue, since the Government is trying to squeeze revenue from a rapidly shrinking percentage of income.

  15. Guido Fawkes

    Knowles is not a conservative commentator.

  16. BevR

    RT @leftfootfwd: Why the Taxpayers' Alliance's tax plans are dead in the water on day one http://t.co/I6cqSMGF

  17. Alex Braithwaite

    RT @leftfootfwd: Why the Taxpayers' Alliance's tax plans are dead in the water on day one http://t.co/VneyQM32

  18. Maureen Parkin

    RT @leftfootfwd: Why the Taxpayers' Alliance's tax plans are dead in the water on day one http://t.co/VneyQM32

  19. Anonymous

    Well sure, he’s not ideologically /correct/, and hence can’t be part of the narrow political philosophy you call “conservative”, but is in fact the “Campaign for Chinese Wages”.

  20. Christian Wilcox

    Why a Flat Tax just isn't possible: http://t.co/HlJOXHJq. You'd be killing OAP's & The #Disabled to do it. #Croydon #Labour (@GavinBarwellMP

  21. Jfpeacock

    If all Government and Council spending is conducted along the same incompetant and self seving expensive fashion as the Defence Procurement Department then it is no wonder that we can’t get down to 33%. It will not be long before the Arab spring starts looking like a walk in the Park compared with the reaction when the English people eventually realise how they are being conned by the so called Political Elite.

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