jimbo wrote:
Even though the treasury uses their sophisticated economic model for calculating the effects of tax changes on revenues, including a number of economic variables such as prices,earnings and consumers' expenditure, their calculations do not make any allowance for changes in the taxpayers' behaviour. The calculations are therefore, essentially "static" in nature. This is clearly a major shortcoming and one the treasury should be urgently addressing- not least of all because their forcasting record for tax revenues and, hence, borrowing over the past five to six years has been abysmal despite a reasonable, though far from perfect,record on forcasting the economy as a whole. In his 2001 budget, the chancellor forecast total borrowing of £12 billion for the six financial years 2000-01 to 2005-06. Alas, the total borrowing over this period will turn out to be £120 billion, despite an extra £8 billion of NIC's revenue each year since 2003-04, with the discrepancy overwhelmingly reflecting deficient revenue. Tax revenues have dramatically undershot. This is poor forecasting on a heroic scale. Doubtless, there are several reasons for the poor forecasts. But surely, one reason is the treasury's failure to recognise the ways in which people and businesses react to tax changes.
I'm surprised that that the Treasury's economic modelling is as unsophisticated as you outline.
But isn't the underestimated budget deficit more to do with lower than forecast economic growth rather than changes in taxpayers' behaviour per se?
Quote:
My second fallacy is the "lump public services fallacy". This is based on the idea that there isarelationship between public spending and public services output. Spend the money, which the Chancellor will insist on calling "investment", and, hey presto, there will be a "lump" of "high quality" services. This flawed idea has undoubtedly been behind the Chancellor's monumental increase in public spending since 2000-01 in order to provide the nation with "world-class" services. Moreover under this mechanistic thinking, if public spending is cut by 5%, then services will be cut by 5%. The notion that better public services, following judicious reforms, can be delivered with less money, is alien. But it is now quite clear that the Chancellor's big-spending gamble is fundamentally flawed. Public sector productivity is falling, public sector waste is growing and the public services remain unsatisfactory. The taxpayersalliance recently estimated that the Government wastes £82 billion annually of hhardworing taxpayers money. The Government has to date, successfully spun the line that lower tax rates inevitably lead to lower tax revenues which, in turn, mean slower public spending growth and, therefore, worse public services. This is nonsense.Lower tax rates will stimulate revenues which, given sensible reforms, could finance much needed improvements in the public services
Absolutely - it certainly seems that the taxpayers' largesse has to an extent been frittered away in the form of higher wages and lowere productivity.
But surely you would agree, the above notwithstanding, that there have been net gains in terms of public sector output despite the shortcomings outlined above?
Login
Register
FAQ
