...a blog by Richard Flowers

Sunday, April 10, 2011

Day 3748: Worse Off Wednesday?

Wednesday (surprisingly enough)

The new Tax Year has begun (eleven days after the quarter day, thank you the Gregorian Compact and the Eleven Day Empire) and no sooner has everyone's personal tax allowance gone UP than Portugal – our OLDEST ALLY; who we SHOULD bail out – kindly provides us with another example of WHY we are going to spend the rest of the year doing all of these spending cuts.

It's pretty cut and dried, isn't it? If your austerity package FAILS to convince, the market LOOSES CONFIDENCE in your economy and your interest rates go THROUGH THE ROOF.

That's the way Master Gideon sees it too – but don't worry, that doesn't make it wrong. Mr Bully Balls says the opposite, so we know THAT'S wrong.

In fact, Mr Balls says that Great Britain's situation is completely different. And of course, he is RIGHT. Portugal owes about a hundred and ninety billion pounds. Great Britain owes the BEST PART OF A TRILLION!

Labour claim that it is the austerity programmes that are causing the debt crisis. WRONG! That is COMPLETELY BACKWARDS. Portugal didn't get its credit rating downgraded because it was doing TOO MUCH austerity – they were downgraded because they were NOT DOING ENOUGH!

Labour like to say that we are in a BETTER position than other Western Governments. WRONG! Thanks to the last couple of years of unfettered borrowing, our debt is fast approaching 80% of GDP, the average among the G7 countries, but with Britain having the LARGEST deficit in the G20 (never mind the G7) then we are ACCELERATING PAST the average and, unless we do something, will soon be topping the table of dishonour.

Hard Labour's position, reiterated by Ms Caroline "Heart of" Flint on Questionable Time, remains one of: "Lalalalala can't hear you!"

Funnily enough, those FRIGHTFULLY UNCONVINCING "Liberals" at the Labour Conspiracy website have published a VIDEO from the Labour Party's backers in the UNIONS saying very much the same thing.

So, how much of a CLUE do the Unions have about the causes of the deficit?

Spot the Difference?

A clue: "spending" and "tax" are labelled the WRONG WAY AROUND!

(Unless they really MEAN that spending collapsed in the recession and the government's coffers are overflowing with soar-away tax revenues???)

But even if you CORRECT the labelling so that the RED line is SPENDING, it's STILL wrong when the voiceover claims that the fall in tax revenue caused the deficit. WRONG! There was a deficit from 2002 onwards – look! Look! The red "labelled tax but should be spending" line is ABOVE the blue "labelled spending but should be tax" line; the collapse in tax revenue just made it much, much worse.

They blur the line between "debt" and "deficit" to claim that we don't have a debt crisis; and then they appeal to the historical fallacy:

Debt Mountain?

Actually, there's a basic statistical trick going on here anyway, which is that by shading the AREA under the graph (and filling it with all those repetitions of the word "debt") it gives the impression that the AREA under the graph represents debt, when it doesn't: it's the HEIGHT of the graph, that is important.

Oh, and that graph appears to show the 2010 debt level at just out of the lower shaded area or only slightly over 50% when it should be half way between the two shaded areas since in 2010 the National Debt was 76.1% of GDP.

This creates an OPTICAL ILLUSION.

How much larger does that debt LOOK? Because actually, the National Debt at the end of the most destructive war IN HISTORY was THREE maybe THREE-AND-A-HALF times larger.

But seriously, their case is that it's FINE to have the WORST debt in fifty years because in the aftermath of World War Part One and World War Part Two we had truly stratospheric debts? Debts that literally cost us an Empire? Debts that led to PEACE-TIME RATIONING? Never mind founding the NHS, we were reliant on American CHARITY to SURVIVE after World War Two.

This is what I mean by the historical fallacy: "it used to be worse so this is fine". Ask yourself: if you'd not worry about Swine Flu just because we used to have BUBONIC PLAGUE?

The next TRICK to make our debt look SMALL and HARMLESS is to compare it with other countries in the world

Where in the World?

(Remember, Mr Bully Balls says you can't compare the British Economy with Portugal or Greece… oh, wait… there's Greece…)

Firstly, they're again slightly undercalling the level of debt, let's generously say they are somewhat OUT OF DATE to say Great Britain's dept is 60% of GDP – Google suggests we went through 60% of GDP in mid 2009 and by the end of the year we were near to 70%.

And by the end of LAST year (2010), I repeat myself, the National Debt was 76.1% of GDP.

Debt of 68% of GDP last year, debt of 76% of GDP this year AND ADDING to the debt with a DEFICIT of 10% of GDP a year would mean debt of 86% of GDP next year and debt of 96% of GDP the year after… unless we cut the DEFICIT.

Let me put that another way: in three years we JUMP PAST GREECE on that league table; in FIVE we overtake ITALY… unless we cut the DEFICIT.

(And no, Japan's example does NOT count – 90% of Japan's debts are to its own national savings bank; 40% of the UK's debts are to foreign investors. Work out the difference.)

Is this a PRUDENT economic policy? Is this a sound basis for investment in the British growth and British jobs that we DO need to pull us into recovery?

Finally, they say that the solution to all this, their "alternative" is GROWTH. Just that "growth". NO word on how the growth is going to happen. The government just keeps on borrowing and spending and by magic, growth happens and makes all the debty badness go away.

Of COURSE we want growth, but it just doesn't work like that. If it did, why did we even have a recession at all?

Perhaps the Unions are so used to "loaning" money to Hard Labour and never getting it back that they think that the rest of the World will do that too. WRONG! Wake up call for the Dinosaurs Unleashed! Eventually, people STOP lending you money. Then you need to go begging.

Which brings me back to Portugal.

Helping to bail out our European partner is the RIGHT THING to DO. "We're all in this together" means EVERYONE, not just we lucky beggars this side of the white cliffs of Dover.

But if that doesn't convince you, there's always the selfish approach: it is in our interest to offer help when we can, because we do not know when we will need it ourselves. We have had to go to the IMF before (thanks to Labour). If Mr Bully Balls is RIGHT about what the Coalition are doing to the economy (he's NOT) then he should be expecting that we will have to go there again. That would be AWKWARD for a man who's been saying we shouldn't help out our friends.

But more importantly, we NEED the Eurozone to stabilize. Most of our TRADE is with Europe – if they go into a permanent tailspin what is THAT going to do for GROWTH in Great Britain? Come on, Mr Bully Balls, if it's ALL ABOUT the GROWTH STRATEGY when where's your joined up thinking? Or is this the so-called "Blue Labour strategy" of "flag and family" (code: appeal to British Nasty Party)?

Look, I'll say this again too: long term, everyone KNOWS that the health of the British economy depends on GROWTH. Hard Labour keep banging on about Growth like they think we don't KNOW that, but OBVIOUSLY the Coalition understand that. What we DON'T understand is how borrowing yet more money to pour down the endless drain of management consultants and public sector quangocrats even REMOTELY helps achieve that!

A real strategy for growth means freeing up people to spend. That is why a VAT hike was entirely WRONG; but it's also why the tax cut for basic rate taxpayers is exactly right, putting money back in people's pockets.

A real strategy for growth means freeing up people to invest. Not Hard Labour's so-called government "investment" in buying jobs. That's REAL people making REAL investments that create and grow businesses and create and grow more real jobs. That's why cutting corporation tax and red tape is RIGHT. We DO need to raise some tax to reduce the deficit, but the right place to tax is UNPRODUCTIVE WEALTH and HARMFUL POLLUTION, rather than INCOME. (Maybe we can twist Gideon's arm a bit more on that Mansion Tax…)

This is going to be hard. There's no two ways about that, and Hard Labour making promises that it doesn't have to hurt is just LIES. I'm sorry, but it's LIES. And the Unions' "no cuts economy" is a FANTASY.

Controlling public spending down will make the economy stronger and more sustainable in the long run. Labour call that "ideological"; I say ACTUALLY that's reversing YEARS of LABOUR'S ideological INCREASES in state spending and power and control.

And we CAN get through this.

Are we worse off for Wednesday? I don't think so.

Short term: higher rate taxpayers will pay more; people on benefits will get less. (So that's BOTH my daddies covered!) But basic rate taxpayers will be a little better off. And we don't begrudge them that. And if it means an economy built on better foundations than ever more Labour borrowing, if it means the British economy HAS a future, then we are better off indeed.

1 comment:

JohnM said...

Labour's current popularity and projected gains in the local elections, does kind of suggest that they have committed the perfect crime.

It's ironic, don't you think, that if the General Election was this May rather than last year, Labour would be facing the same scale of defeat as Fianna Fail in Ireland. The March For The Alternative would have been a popular march against Labour. History would have placed them at the scene of the crime, with the motive, and the weapon.

They would not have been able to hold back the 'Darling' cuts and if they had tried, the consequences would have been so much more apparent.

What a difference a year makes!