Thursday, January 10, 2008

Tax poverty and tax inflation

The wholly useless Wee Nick Cleggie has, apparently, been focusing on fuel poverty. Unfortunately, fuel poverty is not the issue here.
The reality is that the most egregious cause of poverty is not fuel prices at all, but tax. And the government's own figures prove it [PDF].

Following the fuel poverty definition, let's define tax poverty as where a household spends more than 10% of its income on tax. On that basis, of the UK's 24.8m households, in 2005-06 roughly... ooohh... let's see... 24.8m paid more than 10%. So that's 100% of UK households living in tax poverty (see table 14 here [PDF] and yes, yes, I'm sure there must be some subsistence crofters on Benbecula who aren't part of the cash economy, but let's not split hairs).

In fact, the average household tax payment (direct and indirect taxes) in 2005-06 was £11,500, which was 35% of gross income (all cash income, including social security receipts).

35%!

It makes 10% spent on fuel look trivial.

And do you know the best bit?

For the poorest 10% of households, the percentage of their income taxed away by Bottler is no less than 44%.

No wonder they're so strapped.

But the reason that Clegg has no intention of focusing on tax poverty is because the LibDims have less than zero desire to cut tax (no matter what they say in their laughable manifesto) because they have no real desire to cut government services. And since government services cost £60 billion more than tax receipts last year, cutting tax just isn't realistic. (And whether the Tories are any more serious, I also rather doubt too.)

The fact is that, unless services are cut—and I mean services in the broadest possible sense: even the Milk Marketing QUANGO is a "service"—tax will continue to rise.

Because, in order to justify their positions, bureaucrats need to make out that they are important; the best way in which to demonstrate this is to give the impression that they are over-worked; the best way to convey this impression is to insist that they need more staff; to hire more staff they need more money; if they need more money, the cost of the service will go up; if the cost of the service goes up, more money needs to be found; the state has no money but what it extorts from the taxpayer; in order to extort more money from th taxpayer, the government needs to raise taxes. So, in order to maintain services, taxes will always have to rise, quod erat demonstrandum.

There is another aspect of course, and that is the way in which public sector budgets are handled. Put very simply, say that a department has underspent its budget by £3,000 by the end of the fiscal year—the next year it will get £3,000 less in its budget.

Therefore, not only is there no incentive to spent less, there is actually a big disincentive to underspend (I used to work in a printhouse and, believe me, the two months running up to April were bumper weeks, I can tell you).

This has an obvious direct effect on spending; if a department has spent its budget (a little overspend may even be beneficial here), the budget will rise by inflation the next year. As such, it costs more money. But, such is the cost of collecting the money, and the inefficiencies of the state, that it is estimated that every pound that goes into the Treasury is worth about 30p by the time it comes out.

As such, if a state department needs an extra £3,000 in the next year, the actual tax rise needed to provide that is going to have to be rather closer to £10,000. As such, even if the department's budget is only rising by inflation—even the low measure that the government are currently using—taxes will have to rise by considerably more.

Hence the fact that, unless services are actively cut, taxes cannot be reduced. And, the state is deeply cavalier with the money that it gets (because it doesn't really have to work for it) and thus spends it very inefficiently. Once more, quod erat demonstrandum.

Thus, if you wish the money that you work so hard to earn to be spent efficiently and wisely, don't give it to the fucking state. And the only way that that can legally happen is if the state does not demand it.

For the state not to have to demand it, the state must do less. In fact, the state should only do that which we cannot do ourselves; the state should do as little as possible.

Don't want to see your hard-earned cash pissed away year after year? Want to see those on low incomes paying zero tax? Demand minarchism!

2 comments:

Tomrat247 said...

If public service pay rises were linked to consumer price index minus the cost of public services to the consumer price index (regulatory bodies, taxation both indirect and direct) there would be an evolutionary push to lower this deficit on our GDP as much as was possible (so that civil servants could sustain wage increases in real terms versus the present decrease, considering that against inflation a 3% PA pay deal actually represents a wage decrease). This would also incentivise reducing the number of services they have direct control over - if healthcare finance provision was based on insurance systems created from a devolved NI they would necessarily contribute to the GDP (A public good rather than a public service). The tax burden would adjust naturally to economic crisis also - no civil servant would want to intentionally increase the public service burden unless it could genuinely function better than private business; negative effects on country output would be negative on the pocket. You could even have a situation where if the economy tanks their take home pay is reduced as a result, forcing them to adapt further in a manner similar to most businesses in times of recession.

Roger Thornhill said...

As you know, DK, this is motherhood and apple pie to jolly Roger.

Shame such a post could not make its way to Liberal Conspiracy.