Monday, 4 January 2010

Vote Winning Taxes

I heard a radio interview with Junior Minister for the HMRC, Stephen Timms, this morning who was carping on about the Government stopping the 'amnesty' for offshore accounts.

This is where wealthy people store their money offshore and avoid tax. In a similar previous amnesty about £450m was raised. Now, if these people admit they have offshore funds then the penalty for declaring will only be 10% of the tax bill - whereas if they do not admit it, the penalty could be as high as 100%. This is expected to raise a further few hundred million.

Along with the windfall tax on bankers which is expected to raise £550m this year, this offshore clampdown is seen as a real vote winner by the Government as it targets the rich. Fine - they should definitely all pay their way.

However, when Stephen Timms was pressured by Mickey Clarke of Five Live on how to tackle the Budget Deficit there was a drawn out defence on tackling 'inefficiencies' in the public sector but no mention of real cuts or job losses. Naturally, such talk is seen as non-vote winning yet the reality is that if we actually raise £1bn or more by taxing the rich, it does not even help much on just paying the interest on our National Debt. Interest payments alone will be £30bn+ this year, rising to £44bn next year. And that is not even helping bring the deficit down.

The longer the Government deny the problem on public sector spending and focus solely on vote-winning activities like taxing the bankers and the rich, then we are deferring a problem that is only ever going to get bigger. In the next year, unemployment is set to peak at 2.8m, but having created 1m extra jobs in the public sector in the last 12 years, this may be way off the mark when cuts are made. And I think the cuts will have to be far deeper and more disrupting the longer it is left and the Government view is to leave it all until after the election.

The only logic that can support this is that cutting would disrupt the potential for getting growth as we exit recession and so pull us back into the mire. That is flawed thinking - all businesses know that while investing in growth you look for efficiencies in parallel - not doing so only buys worse problems later and i reality you are not really 'investing' but supporting the status quo.

I think delaying cuts is a grave, grave error.

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