...a blog by Richard Flowers

Thursday, April 08, 2010

Day 3383: Election Campaign Day Two – Our Tax Promises are BETTER


Wouldn't it be FUN to MOCK Mr Balloon for DROPPING his campaign slogan of the "Great Unwashed Ignored" after just TWO days. Apparently it "doesn't play well"*.

But I can see I'm going to have to explain this National Insurance row, because now the Conservatories are being TOTALLY DISHONEST.

1: they're NOT "reversing" the penny-on-NI "jobs tax": they're just moving the thresholds

2: they're not REALLY saying how they'd pay for it: last week "efficiency savings were mocked as "fiction"; this week they fund a tax non-rise.

3: this does NOTHING to address the REAL problem: the budget deficit problem, i.e. the "the government spends more money than it gets in tax" problem.

Remember, the Government has already borrowed a TRILLION pounds, and they're BORROWING MORE every day.

The Liberal Democrats ACCEPT that because of this crisis we do have to raise a bit more in tax and make substantial cuts in spending.

Mr Frown's, sorry, Chancellor Sooty's solution is to raise that bit more tax mainly through the increase in National Insurance, (especially now they've abandoned the Cider Tax!) and cut down on that spending using those magical efficiency savings.

Liberals don't actually LIKE taxes: taxes HARM people by taking their money away, taking money OUT of the economy…

(another place where Hard Labour are economically illiterate when they talk about a tax cut as "taking money out of the economy" rather than what it really is which is "leaving it IN the economy"; what THEY mean is "taking money out of the TREASURY", but really it's NOT the Treasury's money, is it!)

…but we also think that OTHER things harm people too, things like not having an education, not having decent health, not having decent housing and so on.

So we BALANCE the harm done by taxation against the harms that we get rid of through public spending, and always seek to MINIMISE the tax we need to take (do as little harm as possible).

The National Insurance tax or "NI" was SUPPOSED to be (but never really was) what was there to pay for old age pensions and unemployment benefit. You paid in your contributions and you got paid back out when you needed it.

But that was never really TRUE. You paid money in all right. But it just went into the big pot of tax. The Government paid out pensions and benefits from that pot, but there was no connection between the NI going in and the benefits going out.

REALLY, National Insurance is just another flavour of Income Tax. You pay your "basic rate" of tax at 20% and then your NI at 11%, so really you just pay 31%.

(This is even more true since Mr Frown added that 1% to all payments – meaning that before there was a set contribution that was reduced for people on lower incomes, so you paid 10% of your salary up until you were paying the whole contribution and then you stopped. Because you were paying the full amount. But Mr Frown then said people paying the full amount should pay a whole new tax of 1% on all the rest of their salaries. These people were – obviously – the better off, so it was FAIR. But it would have been more honest to put 1% on the upper INCOME TAX rate, which would have had the same result.)

NI also has a SNEAKY double-your-money bonus built in, because there are TWO contributions: the bit that YOU, the employee pay, and then another bit, an extra 12.8%, that your EMPLOYER pays as well.

So when Chancellor Sooty says he's adding 1p to the NI rate, he REALLY means he's adding 1p to YOUR tax AND 1p to the tax your employer pays.

This is why the Conservatories call NI a "tax on jobs" – because when your employer takes on a new worker, they don't just pay the advertised salary, it actually costs 12.8% – rising to 13.8% next year – MORE for them to employ that worker. That is for every EIGHT people that they employ they could actually afford an extra NINTH person if they didn't have to pay National Insurance.

Of course, the OTHER way of looking at that is that you are actually getting paid 12.8% more than you think you are, but your real rate of tax is closer to 40% than 20%! But you don't hear many bosses of big business putting it that way, and I should go expecting a 10% pay rise from them if NI were abolished tomorrow!

I think it would be simpler and more honest to combine the bit of NI that YOU pay with your income tax into one easy to understand tax. But NO ONE will propose THAT, because you can guess that at least ONE of the other Parties would accuse them of wanting to raise Income Tax to 32% (even though that is really what it is already – or will be from next April).

Anyway WE would RATHER NOT raise NI, but we realise that, thanks to Hard Labour wasting all that money, it has got to be done.

AND we think that it is only HONEST to explain WHAT we are going to cut from spending.

Some of the things we want to cut are EASY to choose, because they are things that Liberals would not want to do anyway: things like the expensive databases need to make Hard Labour's Police Nanny State work, I.D.iot cards, NHS computer systems that don't work and never will, the expensive renewal of the Trident atom bombs.

But after that, there are things that we admit are HARD to choose: things like reducing child tax credits that go to the better off, and not spending money on a child trust fund that could be better spent on a pupil premium to give all kids a fair start; things like restricting pay rises in the public sector to just £400, and like tackling the cost of public sector pensions. You can't pretend that these won't have real impact on real people, but we're being up front about it.

So, we accept that to tackle the deficit you need to cut spending and raise a bit more tax. But we want to be more HONEST about how we make those cuts and we want to be FAIRER about how we raise that tax.

We want to raise tax in a FAIRER way by shifting the burden of taxation from lower- and middle-income earners and on to higher rate taxpayers and polluters.

To do this we want to raise the "basic allowance", that is the bit of your income that you don't pay tax on, to £10,000, cutting the amount of income tax that you pay by £700 a year.

However, our tax policy is "FISCALLY NEUTRAL", which is a posh way of saying that we don't CHANGE the total amount of tax raised: we cut tax for a lot of people by asking a bit more from those who already have a lot.

We'd pay for the tax cut by raising tax elsewhere, mainly taking away some of the tax loopholes that higher rate taxpayers get (like the higher-rate benefit for pension contributions and the lower rate paid on capital gains) and green taxes.

That means we would raise AS MUCH tax as Chancellor Sooty and SPEND LESS – thus cutting the deficit.

The Conservatories have this COMPLETELY backwards: they say that they will SPEND LESS (though they don't say how) and therefore they will raise LESS TAX than Sooty would – meaning that their deficit is AS BAD (or WORSE!) than the UNSUSTAINABLE one that Hard Labour are running.

This is such an important point that I am going to say it again.

The Government already spends MORE than it raises in tax. So if you REDUCE the amount of tax you take, you make the deficit WORSE. Cutting some spending only gets you back to the DREADFUL place where you started: you are STILL spending more than you raise; there is STILL a BLACK HOLE in your spending plans.

LAST week, the Conservatories claimed that their "top priority" was cutting the deficit… until they decided that THIS week their "top priority" was a not-tax-rise; how can you trust what their "top priority" will be NEXT week?

…so we've had a bit of LOOK at what they might do "next week". We've added up all of their SPENDING PROMISES: more spending on the NHS, more spending on the Army, more spending on the bribe for staying married (subject to them actually telling us what that is, policy still not available four weeks out from the election!) and tried to find that Black Hole.

We say that there is a THIRTEEN BILLION POUND gap between what THEY say they'll spend and what they say they'll raise in tax.

And by an UNBELIEVABLE coincidence (©Miss Piggy, again) that is what you would get by putting VAT up to 20%.


But this is what Conservatories ALWAYS do: Mr Sir Gerffey Howe did it when they came in in 1979; Mr Norma "yoghurt pot" Lamont did it to cover getting rid of the Poll Tax. Earlier this year, Mr Fatty Clarke admitted it WAS an option.

Bonkers right-wing-leaning Think Tankity-Tank "Reform" even suggested applying VAT to the traditionally zero-rated areas of CHILDREN'S CLOTHES and FOOD.

Just think about that: we're just out of recession and people are thinking about making FOOD 20% more expensive.

That's not just INIQUITOUS, it's verging on MURDEROUS!

VAT is a DREADFUL tax: it's the ultimate STEALTH tax, added to almost everything you buy but without you seeing it; it's a REGRESSIVE tax, which means that it has the MOST impact on those LEAST able to pay; and it causes INFLATION too, by putting up prices.
If National Insurance is a "Tax on Jobs" then VAT is the Tory "Tax on Being Poor".

Some people have suggested of Master Gideon that he is "very like Mr Frown" (a comparison that would have NEITHER of them saying "thank you"!): this is because he is supposed to be a GOOD strategist, but comes across BADLY.

Obviously this is NONSENSE.

Firstly, they come across BADLY in COMPLETELY different way: Mr Frown comes across badly as a grumpy, misanthropic, monomaniac because HE IS a grumpy, misanthropic, monomaniac, whereas Master Gideon comes across badly as an ignorant out-of-his depth pipsqueak because he IS an ignorant out-of-his depth pipsqueak!

However, the BIGGER objection is that Gideon is some kind of secret Master Strategist™ who has twice pulled of a sensational Game-Changer (©all newspapers): first he pulled the Tax Cut for Dead Millionaires out of his hat and derailed the 2007 General Election-That-Never-Was, and now he has pulled the National Insurance Not-Rise out of his hat and supposedly kicked off a great start to the Election-That-Is.

Well pardon me, but isn't "let's cut tax" straight out of Conservatory Policy 101?

Neither policy is REMOTELY SENSIBLE; neither comes with any real idea of how to pay for it. We've already seen them shilly-shally the Tax Cut for Dead Millionaires from priority to aspiration; how do we know they'll not do the same with NI?

This ISN'T the sort of rabbit-from-a-hat coup de theatre that Mr Frown would pull in his budgets (you know, like cutting the "basic rate" of tax, paid for by doubling the 10p rate of tax…oh); this is just shouting a favourite catchphrase and running for cover.

(And actually HAS anyone seen Master Gideon since the Budget?)

In summary then:

Conservatories offer to fiddle with thresholds so that you pay £150 less in National Insurance next year; Liberal Democrats offer to increase the personal allowance so you pay £700 less in income tax THIS year.

Liberal Democrats' tax promise is BETTER.

Conservatories offer to spend "fictional" efficiency savings on a tax not-rise and don't tackle the deficit; Liberal Democrats have laid out CLEAR and HONEST areas where we will cut spending and get the deficit under control.

Liberal Democrats' tax promise is BETTER.

Conservatories have uncosted, unfunded spending plans which mean they MUST be planning on raising a LOT of tax from somewhere, and it's very probably VAT that hits the least well off the hardest; Liberal Democrats have pledged not to raise VAT for the lifetime of the next Parliament.

Liberal Democrats' tax promise is BETTER BETTER BETTER!

*And this in spite of trying to AIRBRUSH gay daddies into his list of the great ignored after he, er, IGNORED them on his first attempt!



Unknown said...

You are a very clever elephant, finding the words to explain complicated things like tax in a way that I can understand.

However, I think that you missed out one word in the summary - shouldn't there be a "less" after £700?

Millennium Dome said...

"shouldn't there be a "less" after £700?"


Fixed that.

Whistles innocently.

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