Which tax cuts would be best for the economy?
Jonathan Jones 1:58pm
With all these tax cut suggestions kicking about — and with the British economy
desperately in need of some oomph — it’s worth asking: which would help growth the most? It’s not of course the only consideration, but it is clearly an important one as we
struggle to find our way out of recession.
Fortunately, the OECD is on hand with two recent reports to help answer our question. The first, ‘Tax
Reform and Economic Growth’, divides taxes into four broad categories and ranks them on how harmful they are to growth:
This suggests that the Centre for Policy Studies is right — on growth grounds at least — to focus on cutting corporation tax. It also shows the strength of the Liberal Democrat case for
shifting the tax burden from income (by raising the personal allowance) to property (by introducing a mansion tax). In fact, the OECD says that raising property taxes can actually help growth, by
‘shifting investment out of housing into higher-return activities’. On the other hand, the report pours cold water on Ed Balls’ claims that a VAT cut is the answer. Consumption
taxes only have a slightly negative impact on growth, it says — one of the main reasons the coalition upped VAT in the first place.
In the second paper, ‘Taxation and Employment’, the OECD specifically recommends raising the
personal allowance — as the Lib Dems are calling for — to reduce work disincentives for low-income workers and second earners, two groups who are particularly responsive to such
disincentives. The report also highlights the detrimental effects of the Centre for Social Justice’s proposed transferable allowance for married couples, pointing out that such
‘family-based taxation’ reduces work incentives for second earners.
The CSJ argues for its policy based on the supposed ‘social benefits’ of marriage, but it’s worth taking into account the harm it could do to economy as well. Similarly, the Lib Dems advocate their proposals in terms of relieving the pressure on family finances, and asking the rich to pay their ‘fair share’. But the OCED's findings show that there’s a strong growth-based case for them too.
Previous
Chris
February 24th, 2012 2:04pm Report this commentExcept the UK already has the highest property tax rates in the Western world. Which presumably means the OECD's study doesn't have any data on what happens when taxes go beyond our existing level...
Publius
February 24th, 2012 2:12pm Report this commentMore depressing leftist spin from the depressing leftist Spectator.
Ian Walker
February 24th, 2012 2:31pm Report this commentWhy not offer tax relief for companies that take on more staff? E.g. any company increasing it's permanent headcount by 5% or more would get a 5% cut in corporation taxes.
That would make it easier to sell to the 'business is bad' neanderthals, since the threat of unemployment is usually the number one worry of everyone everywhere everywhen.
Oh, while we're at it, make it conditional on the jobs being based in the UK, and that 50% of the new headcount have to be British citizens - when Europe complain, stick two fingers up at them.
Mr. Green
February 24th, 2012 2:31pm Report this commentThe thing to consider is that there is not a lot of buying going on out there. This in turn results in lower company profits. Reducing Corp tax will simply improve company profits after tax, it will not result in companies employing more people (no need, with such a poor market place at the moment)
What's needed is more money in people's pockets. This will get them out spending, which will inprove profits AND result in businesses growing and employing.
A reduction in direct taxation is needed.
Dave B
February 24th, 2012 2:49pm Report this commentThe HMG budget deficit is caused by overspending.
Any tax cuts should be financed by actual cuts in government spending, not tax rises elsewhere.
Publius
February 24th, 2012 2:51pm Report this commentAnd in his next instalment, Jonathan Jones will be explaining, with the aid of graphs, how government inspectors will be forcing poor people in big houses, particularly the old, to move into those shitty little flats that John Prescott ensured were thrown up all over the country.
Russell
February 24th, 2012 3:05pm Report this commentBalls to a vat cut. Imagine the rush to spend money and then only on 20% vat rated goods when the staggering sum of £10 is knocked off a new £400 television or fridge/freezer or carpets!
Balls is an idiot.
Coalition policy has been from day 1 to increase the personal allowance to £10,000, not something which he now claims to champion.
Retail sales January 2012 were 9% higher than 2011 which makes his desire to cut vat even more absurd.
Grupi
February 24th, 2012 3:23pm Report this commentCut NI for employers. Go to war on red tape. Above all, give sizeable tax breaks to any company that expands its workforce.
This is the stage of the cycle where quite a few businesses are sitting on money and waiting to see what's going to happen, rather than expanding. We need them to do the latter, so let's give them a strong incentive to do so.
Barbara
February 24th, 2012 3:44pm Report this commentGreen ones. (Using the word 'cut' as in eliminated).
THOMAS KNIGHT
February 24th, 2012 3:45pm Report this commentMansion tax anyone?
Actually I'm rapidly coming round to the Land Value Tax idea which seems to resolve many of these difficulties not least to encourage investment in the productive sector of the economy as opposed to the utterly non-productive ie existing bricks and mortar.
Barry Bilge
February 24th, 2012 3:52pm Report this comment"Which tax cuts would be best for the economy?"
Any that are 'funded' by cutting spending.
Russell
February 24th, 2012 4:01pm Report this commentA land value tax also might have some appeal to me Thomas.
A house in for instance a band A council tax pays approx. £1200 per year. If a 1% LVT would result in a similar amount, that would be good starting point. However getting rid of council tax would pose a problem with councils who recklessly employ a myriad of people doing non jobs whilst closing libaries etc. and continue wasting money and increasing council tax. What would happen to a councils income?
Andy Leeds
February 24th, 2012 4:20pm Report this commentStart to simplify the tax system and lets head towards a flat tax.
Jebediah
February 24th, 2012 4:45pm Report this commentNo sane Tory party would open the door on tax wealth... where would it end when Labour get in? With everybody overseas in less venal envious societies.
Jebediah
February 24th, 2012 4:47pm Report this commentHow about we cut the Govt's spending back to an OECD average before we increase tax even further.
David L
February 24th, 2012 4:47pm Report this commentProposition 1 - we have the biggest peacetime deficit in our history.
Proposition 2 - we struggle to compete with other trading nations.
Conclusion - we need to reduce the shackles on business and promote growth so we can become more competitive and reduce the deficit.
Ergo: reduce tax and regulatingry burden on businesses must take priority. IF we succeed in becoming prosperous and solvent (as we were in the years immediately before New Labour, then we can address the levels of personal taxation.
And if we can't cut taxes, then we ned to cut spending (OFFA and the Care Quality Commission could go for starters) and burn those regulations - in fact we should do that anyway.
johngerard
February 24th, 2012 4:57pm Report this commentCut corporation tax to 15%, and to 10% for 10 years for companies willing to move their main base of operations to areas of the country where the public sector currently makes all the decisions and spends all our money. These are also, not coincidentally, the areas of the country where unemployment and benefits claims are highest. So, NE, NW, W. Mids., South wales, SW England. Also cut NICs for employers. And cut all the opt-outs, claw-backs, back-doors, trap-doors and escape-routes for companies so they actaully get these amounts.
That's for starters.
Rhoda Klapp
February 24th, 2012 5:39pm Report this commentI wrote out the solution to all economic problems, but the software has rejected it. Tough, now you'll never know.
alexsandr
February 24th, 2012 6:27pm Report this commentcut back on all this maternaty and paternity nonesense. Firms want their staff at work, not at home.
If the government want people to have these benefits then iy is a government cost, not a business one.
James
February 24th, 2012 6:31pm Report this commentA 1% property tax might knock as much as 10% to 15% off the property value which would hardly help RBS and HBOS whose property lending is already a disaster area.
However, a 1% annual tax on all property not registered with a UK entity at the Land Registry would catch those trying to avoid CGT and Stamp Duty and would raise a few billion each year mainly from people who are not dependent on bank loans.
This would not be retrospective taxation but a change in the rules in how you are permitted to own property in the UK.
William Blakes Ghost
February 24th, 2012 7:17pm Report this commentHas the Spectator gone over to the dark side? We really need to rid ourselves of all those who frequent the Westminster Freakshow. Spectator has really gone down hill since Nelson took over.....
Edward
February 24th, 2012 7:29pm Report this commentHas anyone given any thought to mortgages - if a homeowner has a 50% mortgage they are not being taxed on wealth but on a debt financed asset? Why should property be taxed and not cash / shares / chattels? If this is enacted I will vote UKIP
Tarka the Rotter
February 24th, 2012 10:39pm Report this commentHow about less taxation all round and consequently smaller government? How about getting rid of useless ministries like Sport and Culture? How about doing what was promised and abolishing the quangos? Don't keep thinking of new ways to feed the beast... Oh yeah, and how about making politicans liable personally for the policies they pursue?
It doesn't add up...
February 24th, 2012 10:50pm Report this commentIf a property has a value V to a buyer, and a property tax is then levied at a rate t, the buyer will only be prepared to pay a price P such that tP = r(V-P) where r is the risk free interest rate, because he has to set aside a sum to generate a return to pay the tax. A little algebra tells us that the price discount proportion caused by the tax is t/(r+t). Now do the arithmetic when r is 0.5% and your choice of t. Consider the impact of the discount on mortgage valuations, negative equity and bank balance sheets.
Still want a property tax?
daniel maris
February 24th, 2012 11:41pm Report this commentThere's a tax which would be positively beneficial rather than harmful. Bring in a property sales tax that would be used to fund photovoltaic panel installation at the property and also to fund green energy elsewhere. This would create good quality jobs, reduce people's energy bills and add value to properties.
john
February 25th, 2012 8:15am Report this commentPrivatize the motorway network and slash duty on fuel. Dash for coal and gas power stations. Keep energy as low as possible.
MilkSnatcher
February 25th, 2012 9:21am Report this commentThe political classes are encouraging everyone to engage in a fake debate. Just as Bismarck realised that diverting attention from domestic troubles by banging the drum for war was an effective political move, so Cameron and Clegg conspire to debate tax rises on the so-called rich to divert attemntion fomr the fact that they have no idea how to grow the economy. So the people are guilted into debating and supporting yet more soaking policies, Cameron and Clegg look like they are on the side of the underprivileged, and meanwhile, the dwindling band of those who support the economy feel even more whipped.
They'd never believe you.
TomTom
February 25th, 2012 4:16pm Report this commentNo longer matters. Where we are headed no tax cuts will have any effect, nor will Monetary Policy
Steven Clarke
March 18th, 2012 4:30pm Report this commentAnd the best form of property tax is a Land Value Tax.
Thoughtfan
March 18th, 2012 4:43pm Report this comment@ Publius "More depressing leftist spin..."
How can an article highlighting potential growth value in cutting corporate taxes be leftist? It takes more than 'I don't like it and I'm right therefore it must be left' to classify a position in those terms.
In fact those left/right terms are really unhelpful when it comes to property taxes - especially Land Value Tax because it's something that has support across the political spectrum.
Back to top