A rich man’s Budget or a Greek Budget? What about the deficit?

The Chancellor’s budget speech on Wednesday was about as predictable as that of a super villain. As predicted, the 50p tax got cut (as I predicted it would be sometime ago), a little thank present to the wealthy who helped bank roll the Tories into power…well those that actually still pay tax that is! Meanwhile pensioners seemed to have gotten slapped with the bill. How charming and predictable!

The Tories will argue that the 50p tax cut will encourage growth and attract new business, why the day after the tax cut didn’t GlaxoSmithKline announce a new £350 milion pound investment in the country?. This has got to be the most obvious cynical poltical ploy I’ve every seen. No company makes a decision like this where that much money is at stake in less than 24 hours based on a government budget change (it would typically take many weeks of analysis by the beancounters for a company to even know whether a budget yields a net positive or not). Clearly this decision was made months ago and GSK held it back till the day after the budget and timed its announcement (regardless of what Osborne said) as a friendly thank you to the Tories for funding the board’s next round of Porsche’s, via the 50p tax cut.

The argument against the 50p tax rate seemed to be that it wasn’t raising enough money. Surely in that case I would argue it needed to be raised yet further. Or they needed to clamp down on tax dodgers, such as a certain “lord” Ashcroft or Phil Green of Topshop (inexplicably still a government advisor)… or is the name Greed of Top dodgers!

Anyway, the argument put forward by the millionaires for the tax cut seemed to be that with taxes so high they just couldn’t be bothered to set up companies or try harder and would rather just sit in the corner and sulk. I describe this as the Kevin & Perry defence “taxes are too high! Its so unfair, aw I hate you!” Of course isn’t the principle Tory argument against the wealthy not being subject to a wealth tax (as other nations apply) that they are motivated to set up businesses and earn more? If this is not the case and they are paying hardly any tax then surely a wealth tax is thus a good idea, no?

And speaking of the “unfairness” of the budget, I noted that alcohol went up with talk now of a minimum price for booze. One could argue, using the same logic of the millionaires (of the 50p discriminating against them), that this alcohol duty discriminates against Irish people. Suppose I’m now so under-motivated to work due to this rise that I now don’t bother showing up for work Monday and just hang around and sulking? Or in the same way the rich feel justified in dodging higher taxes which they poltically disagree with, am I now justified in setting up a pot still and making Potcheen? Would those on the right agree that this is justified? I think not!

The Mansion Tax that will fail
To placate the lib dems and prevent Nick Clegg being lynched by a gang of pensioners, the Tories have promised a mansion tax to claw money back from the wealthy. However, I confidently predict it will miss the mark, as the wealthy will simply find ways around it. The wealthy already dodge stamp duty and council tax. Casing point take One Hyde Park, a plush pad for London’s mega rich. But of the 62 properties in the development, only 9 have registered to pay council tax, and only two stamp duty!

Further there is a world of a difference between a million pound home in, say, Westminster or Notting Hill (which could be just a small house or apartment) and say Glasgow or Liverpool (that would probably buy you a luxury penthouse suite!). Consequently if you are a pensioner of modest income, who bought a house in Kensington, when it cost you just 455 pounds and ten shillings, retired there on fixed income before the yuppies arrived and pushed up house prices. Now, struggling as you are to pay the council tax, thanks to Osborne you can’t even sell the house due to the stamp duty. No doubt such individuals are probably reading the sides of cat food tins and wondering whether they can live off them…other than that planning to burn down their house for the insurance money!

No, the best and fairest way to tax people is based on their ability to pay, and pensioners on a fixed income, or arbitrarily taxing people on the speculated value of their property are poor ways of doing this. Taxing actual accumulated wealth, earnings or consumption (VAT or Carbon taxes) are the best approaches as this directly reflects ones ability to pay on what one pays in tax.

A Greek Budget?
But I’ll finish with my title, the Greek element of the budget. In order to quell anger over the 50p tax rise Osborne had to work doubly hard to avoid increasing income tax to the rest of us. Unfortunately that leads to the obvious question, how exactly are we supposed to cut the deficit if everyone’s paying less tax? Austerity measures alone can’t solve a deficit, indeed they may ultimately slow down the economy, depress tax receipts and push the deficit higher, as we are seeing in Europe.

The government points to the fact that it will spend less on borrowing due to a lowering of borrowing costs (due to the Eurozone crisis many are hoarding cash in UK banks). This implies that the plan is to take advantage of the low interest rates to borrow more? Hang on, isn’t this exactly how the Greeks got into trouble? The low interest rates meant the Greek government got away with borrowing more (with a little help from firms such as Goldman Sachs), but because the cost of servicing this debt fell (due to interest rates falling prior to the bank crisis) nobody caught them at it. Large infrastructure projects such as the Olympics also helped conceal the looming bubble (Osborne also announced support for an Airport in the Thames on an Island big enough to accomodate Boris Johnson’s ego).

But of course it didn’t last for the Greeks. The banking crisis hit, interest rates soared, tax receipts fell and the Wall Street vultures realised they could make more money bankrupting Greece than saving her. The rest is history. What chance of this repeating? My view? about 50/50. And its worth remembering that an implosion of the Eurozone will have serious repercussions for the UK. Greece going down was always a pre-planned event. However, other eurozone countries could do a lot of damage, Ireland for example owes a good £80 Billion+ to UK banks.

Again one cannot avoid the conclusion that the Tory mantra about wanting to cut the deficit is just tosh. The truth is they don’t actually care about the deficit, which will be a problem for future generations of tax payers. Of whom they represent a slightly lower percentage of since Wednesday! No the Tories are merely using it as a ruse to hammer public services and flog the peasants and increase the power and control of their Bullingdon club buddies that little bit more.


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