Saturday, July 15, 2006

A Voice From The Other Side

BOM team taking criticism

Here on BOM we hold these truths to be self evident:

  • that high taxation stifles enterprise, discourages effort, and depresses long-term economic growth
  • that all governments waste money, and Big Government wastes most of all
  • that most public services could be improved if government just cleared off
  • that we would be better off if government concentrated more on the stuff we actually need it for, like national defence and border control

Which is why we want to see smaller government, lower taxes, Reform's choice and competition in public services, and Direct Democracy's fiscal decentralisation and locally elected law officials. It all seems so... well, self-evident, it's kinda surprising not everyone agrees with us.

Even more surprising now that we're accumulating the hard evidence to support the truths. Along with the Taxpayers' Alliance's Bumper Book, this blog concentrates on government waste, the extent of which is eye-watering. Others- including the OECD- have been analysing and calibrating that tax/growth relationship.

Still, despite the truths and the burgeoning evidence, some objections we can understand, even if we disagree. Sacrificing economic growth in order to achieve a more equal distribution of income is at least arguable. Even we Small Government types mostly accept the need for some redistribution in order to provide a safety net. And as Walter so nearly put it, "say what you like about the tenets of Marxism, at least it's an ethos".

But other objections are on much shakier ground. Take the one raised by ethical accountant Richard Murphy on his Tax Research UK blog. Richard lays into the Taxpayers' Alliance proposal for HM Treasury to set up a Dynamic Analysis Division (as you may recall, that's intended to ensure that HMT takes proper account of the effects of taxation on longterm growth). Then in a rather tetchy response ("don’t abuse the evidence...please debate - but can you get your facts right first?") to a very polite comment I posted, he says:

"The OECD data does not prove that tax cuts are linked to growth. Statistically it says this case is not proven. It does not say tax increases increase growth, I agree - but not the reverse. So that’s one of your arguments down."

Ha!

Compare and contrast with what the OECD themselves conclude from their painstaking statistical work:

"Taxes...seem to affect growth both directly and indirectly through investment. An increase of about one percentage point in the tax pressure... could be associated with a direct reduction of about 0.3 per cent in output per capita. If the investment effect is taken into account, the overall reduction would be about 0.6-0.7 per cent." (The Sources of Economic Growth in OECD Countries, Section 2.3)

Sure, stats are tricky beasts, and Richard (BA Economics and Accountancy, Southampton) could be right, and all those Profs and PhDs at the OECD could be wrong. Sure, that could happen.

Hmm.

I think we'll stick with the Profs.

PS It's a shame Richard is a tad tetchy, because actually he has some interesting stuff on his blog. There's some great material on offshore tax avoidance- in fact it was through Googling "cost of tax avoidance" that I stumbled across him. For example, he estimates total offshore tax avoidance by private punters alone at $255bn pa worldwide. Assuming Britain's losses in line with GDP, that suggests it's costing us honest British taxpayers £5-10bn pa. To add to all our other losses from tax fraud etc. Makes you think.

2 comments:

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