Wednesday, May 07, 2008

Taxed To Beggary


One of the fundamental problems with government tax and spend is the disjoint between the two. And the disjoint is especially severe in our own minds.

Now this is just a hypothetical example, you understand, but say we got approached by some plausible looking guy who promised us a whole load of extra goodies without any significant cost to ourselves. Schools, hospitals, more Bobbies On The Beat... sounds pretty good, huh? Beats the hell out of Tescos, who will only supply us with more ready-meals and booze if we pay cash on the nail.

So where do we reckon the money will come from?

Well, maybe we think it won't cost very much. Everyone knows government is wildly inefficient - those extremists at the TaxPayers' Alliance reckon there's now £100 bn pa of pure waste. Surely the New Guy will simply reorganise some stuff, eliminate all that red tape and inefficiency, and get much more bang for our buck. Yes, yes - there won't be any cost. Hurrah.

Hmm. But didn't The Old Guy promise precisely that when he was The New Guy...

Or - of course! - you'll like this - the New Guy will pull The Magic Levers so unforgivably neglected by the Old Guy, and the pie will inflate. All those extra goodies will cost more, sure, but the money will come from A Bigger Pie, so nobody will be any worse off. Hurrah.

Yeah. But didn't The Old Guy promise precisely that when he was The New Guy...

Ah yes! Someone else will pay. Taxes will be increased for The Undeserving Rich, and Big Business, and Foreigners... but they won't be increased for Hardworking Families like us.

Hmm...

Well, look, what with plague hospitals, dumb-down schools, killers roaming every street - It's Time For Change. So let's give The New Guy a chance. He says he won't increase tax, and...

Do we actually think like this? Or is it that we don't really think about tax and spend at all? We just don't make the connection because, unlike our trips to Tesco, the goods we get from the government are totally detached from their cost. We don't have the relevant information, and we're not confronted with meaningful "signals".

So instead, we blunder around in semi-darkness , always impotently furious about the state of our public services, and sometimes furious about the burden of taxation.

And suddenly Tax Fury is back. Three years ago on the doorsteps you couldn't give it away. But this morning the papers are full of it:

  • Labour's tax on drivers up £600 a year (Telegraph) - the AA calculates Labour has increased the annual tax on motoring has to £1800 pa; roads are a perfect example of the tax and spend disjoint, and Prof Stephen Glaister, the newly appointed director of the RAC Foundation, says: "There is no logic behind the fact that the Government now spends far less on roads than it collects in motoring taxes. In the 1970s they were in balance, but tax revenues have grown in line with road use, while spend on provision has fallen. Road users must expect to pay for such environmental and other damages as they cause to others: and they do. But this does not account for the imbalance. It is not reasonable that roads have become treated as a ready source of funds for all the Government's activities."
  • TAXED TO THE LIMIT (Express) - cabinet "colleagues" have warned Gordo he's got to cut taxes; former Cabinet Minister Charles Clarke "condemned excessive stealth taxation and waste. He said the Government needed to “reduce our profligate and bureaucracy-promoting public administration”. Taxes and other local and national Government charges should “relate more closely to expenditure." It's that disjoint problem again.
  • Broke Britain: How soaring bills have left cash-strapped families with less to spend than for 17 years (Mail) - "Soaring prices, stagnant earnings and Gordon Brown's stealth taxes are combining to squeeze our standard of living - and the electorate sent Gordon Brown a signal last Thursday that it has had enough."

(Yes, OK, the Grauniad and the Independent prefer other stories such as how Boris will fail as London Mayor, and how the Tories are gloating. But since their joint circulation is about 27 and falling, we can pass on).

The fury is back alright. But for us zealots, the question remains - how do we break the disjoint between tax and spend? And how do we get the next Tory government to go beyond talk about cutting waste and growing pies? How do we get them to break up central government and re-establish a link between service and cost?

PS The chart shows how the tax burden has increased under Labour: between 1997-98 and 2007-08, it soared by over 70% in cash terms, and 50% in real terms (deflated by the government's preferred CPI measure of inflation).

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