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.