Time for a “tax Death Row”by Mark Littlewood / November 7, 2016 / Leave a comment
There has been much debate over the past six years about the supposedly deep cuts in government spending—with comparisons ranging from the policies of Adolf Hitler, to returning the UK to the world of The Road to Wigan Pier. These frankly ridiculous claims have carried on despite the level of government spending, as a proportion of GDP, still being greater in some UK regions than it was in the old Soviet Union. In reality the efforts to reduce the size of the state have been pitiful, with the government still spending around 45 per cent of GDP. For some context, this is 10 per cent higher than during the 1960’s “post-war consensus” levels that so many on the left long to return to.
But one significant question missing from the debate has been what level of government spending maximises wellbeing, economic growth or—frankly—what level is affordable.
The Institute of Economic Affairs’ Tax and Growth project has looked to do just this—to robustly analyse the levels of both tax and government spending that best support economic growth, and to analyse how the tax system can best raise the necessary funds for government expenditure without distorting the market.
Unsurprisingly to anyone of the free market persuasion, the statistical results show that the implicit assumption of social democrats—that transfers from the “undeserving” (read the rich, smokers, or “capitalists”) to the “deserving” cause no wider burden to the economy—to be incorrect. To be sure, perhaps those on the left do not want economic growth, but if we do the evidence is stark. To create growth, taxes should be radically cut.
It is estimated that for every percent removed from the tax burden on the British economy we would gain 0.1 per cent of economic growth each year. To put it another way, if we were to cut the tax burden to the levels of an anarchic, ungoverned hellhole like Australia we could hope to see almost an extra percentage of economic growth per annum. For a worker on average wage, this extra percentage of growth would be worth more than £8,000 to your pay packet over the next 20 years.