Josh Ryan-Collins is a researcher in the Business, Finance and Economics team at nef.
And yet another group of big business chief executives have signed up to the Conservatives’ policy to reverse Labour’s proposed 1% increase in National Insurance. Should anyone really be surprised that businesses would rather not have to contribute to reducing the public deficit? No, the interesting thing about this media furore is how few alternative suggestions are being promoted by any of the major parties in the run up to the election. The tax debate remains stuck in the ‘old economics’.
Critics of Labour’s policy are right that it is a tax on labour or ‘jobs’. But what is less clear is that government ‘efficiency savings’ are not equally a tax on jobs in the public sector. Anyone who thinks public agencies can achieve the kind of cuts the Conservatives are proposing without major redundancies is living in cloud cuckoo land. And given there are proportionately many more jobs in the public sector in the poorer areas of the UK one could also argue that cutting public sector budgets is more regressive than taxing business.
But it doesn’t have to be a zero-sum game. The ‘new economics’ is about replacing taxes on what we do want – productive jobs, investment in high quality public services – with taxes on what we don’t want.
And everyone’s pretty clear on what we don’t want. We don’t want fossil-fuel intensive production or transport. We don’t want another housing boom. We don’t want massive windfall profits for energy suppliers because its been a cold winter. We don’t want huge bonuses for bankers who have made speculative short-term profits by playing with our pensions or retail deposits.
If we tax these areas we not only raise revenue to meet the budget deficit, but we also steer our economy in the right direction and provide incentives for more productive investment. A land value tax, for example, would act as automatic brake on speculative booms in the housing market and might encourage us to invest our savings in industry rather than non-productive property. A carbon tax or rationing system would incentivise investment in renewable energy schemes and encourage more sustainable consumption. A financial transaction tax (FTT) would slow down and shrink the ‘socially useless’ finance sector.
Plus, these schemes would also be progressive, a land tax stopping the widening wealth gap between home owners and tenants, a carbon tax redistributing from rich to poor in most cases (as demonstrated in the recent report by the Green Fiscal Commission) and an FTT would bring city pay back down to earth.
This is not rocket science. And its not simply a call for more ‘green taxes’, although even that seems to have dropped off the political radar. It’s a call for a taxation system that promotes ‘economic goods’ and punishes ‘economic bads’. A new economics of tax can be win-win for the economy, society and the environment as well as improving the public finances. Lets hope the party (or parties) that come in to power in May feel able to turn over a new leaf in the tax debate.
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16 April, 2010 at 1:33 pm
David Chester
A tax on land values will not only stop another housing price boom, as reported above. It will be very beneficial in a number of additional ways. Briefly, these are:
# It will stop speculation in land values. This means that the free-lunch land owners have been enjoying will cease.
# The associated corruption due to the leaking the news of long-term plans for land and housing development will no longer be possible.
# The present land owners will want to use their land for more efficient and or productive purposes, rather than letting it lay idle. This will have the effect of making so much of it available that its competitive price will fall.
# The adverse effect of dropping land prices is that speculators whose investment is already tied to land, will want to pull out and their various mortgages will cease to be worth retaining. This will cause some the banks who hold these contracts to anticipate losses and many of their investors will withdraw their funding. Bank losses and bankrupcies will result UNLESS the LVT is introduced very slowly, so as to allow investors time to organize their money elsewhere, hopefull in capital goods where the increased demand (see below) will need more tools, buildings, transports etc.
# The national income will grow and more destructive kinds of taxation on earnings and purchases can be reduced. These changes will stimulate the economy because the manufacturing costs (and the resulting prices of consumer goods) on the cheaper land will be less.
# Unemployment will decrease, consumption will grow with better living standards, poverty and the polarization of our class society will reduce. Greater working opportunities will be possible, due to cheaper land that is more easily available..
# The national economy will no longer suffer from “business cycles” due to the land and housing prices becoming stable. The previous 19 year cycles of this kind will cease.
# The investment of infra-structure that government spending of taxation money gave to land owners, will now be reflected in land prices, with the result that the land owners will not be able to benefit from everyone’s taxes, as in the past.
In short this is such a beneficial kind of change that the only explanation as to why it was not previously adopted must have been due to a small number of land monopolists and government officials in land legislation.
16 April, 2010 at 1:43 pm
David Chester
Forgot to add:
# The cost of collecting the LVT will be considerably less than for income tax and other production related kinds. The many “let-out” clauses for these kinds of goods-based taxes will no longer require the present army of tax inspectors to verify. Unlike these kinds, a tax on land value is difficult to avoid. If one owns a site of land, its value becomes public knowledge the moment it is offered for sale or lease. Maintanence of land-value maps will be the only added job of the tax inspectors.