Friday, 27 March 2009

Clegg's taxing high-wire act....

. Just as the Conservatives try desperately to untangle their taxation knots it seems we have one of our own. Or do we? Nick Clegg's interview in the Financial Times where he abandons the goal of cutting the net overall burden of taxation *in the short term* has caused great waves on the blogsphere as maybe expected. The operative phrase is in asterisks above to highlight it for those, on left and right, who think this represents a fundamental policy shift. It doesn't.

Towards the end of the article we find this paragraph;

"Mr Clegg said his long-term aim was still to cut taxes and to reduce the size of the state, although he said there was a case in the short term for some expansion of the state to pull the country out of recession.

In the meantime, the Liberal Democrat leader is calling for a redistribution of the tax burden to help low- and middle-income earners, principally by cutting tax breaks and closing loopholes for high earners."

I think this is pretty self-explanatory. Redistributive taxation in the short/medium term, as a kind of fiscal stimulus, but the long-term aim remains the same. Quite what does the Social Liberal Forum imagine will happen not in this election but the election after next? When all the talk from the Conservatives is of further austerity and Labour (now in opposition) is complaining of typical Tory cuts?? Where do the leftish cheerleaders of Clegg's announcement imagine he will want to take policy then?? I would imagine there are pretty large clues in the paragraph quoted above.

One imagines that at this juncture Charlotte Gore may well be frantically piecing back together the membership card she seemingly longs to rip asunder. Leaving aside the always colourful language that Charlotte's explosion brings forth I think it may well be premature. Clegg has not turned a corner or 'repented' as Dave Allen says he has at all but has merely recognised the economic realities of the current situation. Charlotte describes these thus;

"there's really no choice but to increase taxation, in order to continue funding our massive public sector whilst tax revenues are falling and welfare costs increase."

Notice the lack of any attempt to join the dots. Welfare costs are increasing (as is the size of the public sector) because the private sector has collapsed and is throwing people on the dole left, right and centre. Is it true that when a building explodes, if you want a new one erected you first have to actually build one? Yes it is. Alternatively, you could just leave a pile of rubble in it's place but there is little chance of one emerging from the ashes of its own accord phoenix-style.

Clegg is not proposing people be 'taxed more'; what he is proposing in the medium-term is a mildly redistributive fiscal stimulus, taking the pressure off of where the tax burden falls hardest on the lower/middle income earners in order to free up money which they will then spend; thus injecting more capital in the system etc, etc. It is not that this bracket is 'sitting on wodges of cash' it is that they don't have it because the tax-man takes it; so this is not an issue of Clegg conjuring fantasy savings into being.

It is her who indulges in conjuring tricks;

"for every pound the Government spends, it is a pound that cannot be spent by the private sector".

This is a false counterposition; the banks are not lending to the private sector so the private sector has no 'pounds to spend' regardless of what the government does. You can argue rightly that our tax dollars shouldn't have been spent on filling in massive holes in the bankers backyards and actually spent on real recapitalisation but you cant imagine a fantasy booming and vibrant private sector where none exists.

What would the real consequences of a massive 'kicking off the public payroll' now be in real terms other than an increase in unemployment; rising welfare costs (thus the increase of the need to fund these costs either through increased taxation or borrowing)? Saying that this is the solution now is economic madness to be painfully blunt. However, as I said above it would be wrong for anybody to assume that Charlotte might not find contentment in the future with Clegg's direction because it is really true that the more things change...the more they stay the same....

2 comments:

Letters From A Tory said...

Clegg really is losing any sense of control over the Lib Dems.

Because he has spectacularly failed to communicate any principles that are supposed to be driving the Lib Dems rather than spouting out policies at random intervals, the impact that he makes on the political consciousness is almost zero.

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