Wednesday, April 22, 2009

Fiddling While Rome Burns

Last April the IFS calculated that the Government would maximize the revenue it collects from those earning over £100,000 by imposing a marginal rate – the additional tax paid on each pound of increased income – of 55.6 per cent. That was perilously close to the ( April 08) marginal rate of 53 per cent charged when income tax, national insurance contributions and indirect taxes are all included. (Dominic Lawson). The IFS concluded that "there is not a powerful case for increasing the income tax rate on the very highest earners, even on redistributive grounds." The other day the IFS showed that imposing a new 45p rate of income tax on the rich will actually cost the Treasury money, The top rate of tax will force rich people to leave Britain or use accounting rules to avoid paying income tax on more of their wealth , they said . Now the 45p rate on £150k incomes and above is to be increased to 50p. Those on £100k will not benefit from increase in thresholds.
This presumably costs even more what a fiddle !
Meanwhile Rome burns .Duncan at Duncan`s Economics Blog sketched the scale of conflagration before the budget. ‘Assume GBP hits 100%, and cost of government debt (in terms of annual interest) rises to 6% (currently less than 3.5% and probably will be for a while but in the longer term that may well rise).Then the government will need to spend 6% of GDP annually on interest payments (currently closer to 2% of GDP before the new borrowing).Tax is currently about 37% of GDP and government spending will be around 45% of GDP If we want to hold the debt ( not pay it off) then we need to find an additional 12% of GDP (the extra interest payments and balancing the budget).12% of GDP ..would mean cutting about 25% of all public spending. .....or about a 30% increase in taxes’
Oh and by the way ,according to the IMF, we are going to have our economy shrink by 4.1% this year, and 0.4% in 2010. , if the IMF is right then we will not have 3.5% growth in 2011 either, meaning that borrowing will rise even higher than already predicted.

6 comments:

asquith said...

I oppose 50%. But it is very clever politics indeed. It will go down extremely well not only with Labour voters teetering on the edge of the BNP, but also residents in marginal seats, extremely few of whom earn above the threshold but who nurture a vague anger towards very high earners, want to strike a blow against them & don't particularly care about how it's done.

You have also got the fact that Cameron will either have to repeal it (sending out the wrong messages politically, however right it may be economically) or keep it (conceding a kind of victory to Labour).

Now you may well say that it won't work & if anything further pain will be felt by low earners. But most low & medium earners will not take such a long-term view.

Do not be at all surprised if the Daily Mail etc support rich-bashing. They are interested in what sells, & lower-middle-class tossers have never been friends to high earners. No one would care what is right.

As usual with this government it is politics not statesmanship. So even if this policy turns out to be utter shite, they are celebrating at the fact that they've wrongfooted the Tories & any harm they do will not be attributed to them as most voters do not have a long enough attention span to do any such thing.

asquith said...

BBC.

However, the Conservatives have indicated that they will not reverse the proposed 50p tax rate if they win the next election.

Treasury spokesman Philip Hammond told the BBC his party could not "in all honesty" promise this given the scale of the "black hole" in the public finances.

"We are not going to make a commitment to repeal the 50p tax rate," he said, adding the Tories would instead seek to reduce the tax burden for those on middle and lower incomes.

"We are going to focus on the taxes for the many."

Newmania said...

I am begguibning to wonder Asquith if both Parties want ther IMF in so they will not be held accountabkle for what has to be dione and that is huge cuts in Government spending as well as taxes levied on evryone

it's either banned or compulsory said...

This is really boring, all those numbers, when can we talk about something really interesting like Jade Goodys come-back ?

asquith said...

I suspect Labour wouldn't mind so long as it happened just after they left office! As I said, voters have very short attention spans & that.

As cunning as it gets.

Newmania said...

I like numbers ITBOIC I used to like Dinosaurs and planets ...I `m a bit boring basically

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